I’m 42, Make $200K, and I Bought a $1M Home With a Rental ADU That Pays Our Mortgage

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Today, a small business owner shares how he and his wife used seller financing to buy a primary home with a rental ADU. That property, combined with rentals they already owned, enables this young family to live for free. 

Make Money Online The basics

Age: 42

Pronouns: He/him

Household setup: Married with two kids and a dog

Occupation: Small business owner

Household income: $200,000

Make Money Online What was your home experience when you were growing up?

My parents and my wife’s parents own their homes, along with rental properties. For both of us, owning real estate meant financial freedom. 

Make Money Online What was your home experience as a couple?

When I met my wife, she owned her house and rented the basement. When we got pregnant, we moved to a new house.

Make Money Online What made you start actively looking for your next home?

I was hungry to buy another rental property and grow our portfolio. I happened to drive by a “for sale by owner” sign in front of a house. The house wasn’t that special, but the location was fantastic. I told my wife, and we called to find out more.

Make Money Online What did you think of that house?

We didn’t love it. We told the sellers that we’re a young family who needed more space. They shared that they had a Craftsman-style home next door that they’d owned for 15 years and were about to put on the market. We took a look, and my wife fell in love with that home. 

Make Money Online Did you have any non-negotiables?

The biggest thing was finding a home that would generate income. After that was the location. This home is across the street from Mt. Tabor Park. We have two small boys and a dog, so it’s nice to have that park nearby. It’s also within walking distance of a grocery store, and a lot of other things that are important in life. 

Make Money Online What did you like about this home?

It’s a 1911 Craftsman. The sellers had updated most of the home. They installed new double-pane windows and drywall, new Pex plumbing and all new electrical. They also had remodeled the kitchen and bathrooms. We wouldn’t have bought it, though, if it didn’t have the ADU. As soon as we moved in, we had paying tenants.

Make Money Online Did you look at any other houses before buying this one?

I had seen a few homes and talked to a couple other sellers, but nobody was keen on a seller-financing deal. 

Make Money Online How does seller financing work?

With seller financing, the seller acts as the bank. These deals are typically done with sellers who have owned the property a long time, and have paid off the mortgage outright. 

Make Money Online How did you learn about seller financing?

I had been watching YouTube videos to learn how to do a seller-finance deal. It’s all about the terms. There is no right way or wrong way to do it. I learned as much as I could, and then took some advice from my parents, who are immigrants from Poland. They’ve always told me, “Just ask.”

Make Money Online Why were the sellers open to this kind of deal?

It helped us that the sellers owned several other properties. They sold two of them in the typical fashion, receiving cash outright. It turned out that they hadn’t finished paying off the mortgage of the home we wanted. So, we waited until one of their other homes had sold, allowing them to use some of that cash to pay off this home’s mortgage, and to offer us seller financing. As it turns out, the couple had also bought a house a long time ago where the seller did the same thing for them, which made them more receptive to negotiating terms. 

Make Money Online What terms did you negotiate?

We agreed to a purchase price of $900,000, with the sellers holding the note. The down payment was $170,000 and we agreed to pay them $2,400 a month for the next 27 years. We also agreed to pay a higher interest rate. At the time we bought, banks were offering a 4.5% interest rate—and we agreed to pay the sellers 6.5%. And we agreed to pay the property taxes on our own. 

Make Money Online Where did the down payment come from?

Together, my wife and I make $200,000 a year. We’d both been saving up as much as we could. We cleared out our savings accounts to make this down payment. 

Make Money Online Did you save money by using seller financing?

If we had bought conventional, we would have put down 20%, which would have been $180,000. So we paid $10,000 less there. And we worked directly with the sellers and didn’t pay closing costs, which saved roughly $35,000 to $50,000. 

Make Money Online What’s the biggest benefit of this home?

We house-hacked our way into living in it for free. The basement of this home rents for $2,200 a month, which offsets the monthly payment of $2,400 to the sellers. Not only that, but we’re also making good money with our rentals. The home my wife owned before we met brings in $400 a month, after we pay that mortgage. Our three-unit property cash flow is $3,300 a month. The goal is to bring in between $20,000 to $40,000 in cash flow every month from our rentals. We’re not there yet, but we’re on our way.