BEND, Ore. (CNN/Money) – When Robert and Yvonne Cromer bought their first house in San Diego in 1998, they had their doubts about whether they could afford the $130,000 price tag.
|Yvonne and Robert Cromer with their daughters, Haley and Hannah.
As new parents in their twenties, they were living off Robert's $50,000 salary as a hotel manager and paying his tuition for graduate school. With nothing saved for a down payment, the Cromers took out a $3,000 cash advance on their credit card and asked the sellers to kick in another $4,000, enough to meet the requirements of a Federal Housing Administration loan.
Then, to help pay their $900 in monthly mortgage expenses, they converted the home's master bedroom – which had a separate entrance, bathroom and laundry room – into a $350-a-month rental unit with a kitchenette in place of the laundry room.
"We were broke," said Robert, now 35. The couple was so broke, that Robert used his vacation to compete in a roller-coaster riding contest that promised $50,000 to the person who could last the longest. After 70 days with an unpaid leave of absence from work, he split the prize with four other people.
"It wasn't a financially smart move," said Yvonne, 30. Fortunately, the house was.
Soon, the Cromers began leveraging the equity in their first house to buy a second house, then leveraging their second house to buy a third, and so on. In all, they have acquired eight properties in three different states with an estimated value of $3.4 million.
The strategy requires a strong stomach for risk, not to mention a strong housing market.
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The Cromers' total mortgage debt adds up to a little over $2 million, with monthly payments for their loans, taxes and insurance ringing in at $12,400 before rent checks come in. And while rental income adds up to about $9,300 a month, there are definitely times when the couple feels "house rich and cash poor."
Still, they believe wholeheartedly in real estate – so much so that in 2002 they both got licenses to sell it. Robert now works full time as a real estate agent, and Yvonne is a loan officer. Together, they make about $175,000 a year.
"We have gotten lucky," said Robert. "But we've also done our homework and we've been willing to take risks."
Riding the San Diego boom
After the Cromers bought their first house, near San Diego State University, they lived in it for a little over two years. Then they decided to turn their portion of the house into a rental, borrow against their home equity and shop for a new place to live.
In October 2000, they found their next acquisition, also near the university. "It was the ugliest house on the block," said Yvonne of the 1970s ranch with mustard trim and turquoise blue wrought iron shrouding the windows, doors, driveway and yard.
But at $259,000, the price was right for a place with four bedrooms, two bathrooms and a rentable guesthouse.
Less than a year later they started thinking about their third move, this time into a new development in Chula Vista, just south of San Diego. In October 2001 they paid $5,000 in good-faith money to lock in the price of $361,000 on a 2,700-square-foot home that wasn't yet built.
The following spring, they sold their first house for $285,000 (more than double what they paid), rented out their second house and closed on their third house, which had already jumped in value.
"The day we moved into the house it was worth $450,000," said Yvonne of the couple's current residence, now worth about $750,000.
Trying their luck elsewhere
Once they were settled in their Chula Vista house, the Cromers decided to take some of their home equity wealth out of state. They packed up their daughters, Haley and Hannah, and drove six hours northeast to another thriving housing market -- Las Vegas.
"We knew Las Vegas was booming and home prices were still affordable," said Yvonne. The couple had planned to spend less than $200,000, but after seeing an upscale development called Lake Las Vegas they doubled down on a $500,000 townhouse with a pool and spa. They paid $25,000 in good faith money to lock in the price and waited while construction was completed.
According to a recent appraisal, the house is now worth about $800,000. Although the rent isn't quite enough to cover the total expenses, the Cromers plan to hang onto the house with the hope of one day using it as their own second home.
In 2003, the Cromers renovated their San Diego rental (the former "ugliest house on the block") and sold it for $620,000 using a 1031 exchange – a tax loophole that allows sellers to avoid capital gains taxes if they use the proceeds of a sale to buy similar property.
In their case, they bought three, including a $452,000 single-family rental house in San Diego and two properties in Robert's hometown of Indianapolis.
"The market in Indiana is flat, which means you can negotiate for lower prices," said Yvonne of their condominium in downtown Indianapolis and a lot in a nearby suburb.
The buying spree has spilled over to 2004. In January, the Cromers closed on another new townhouse in Las Vegas, for which they paid $158,000. Then about a month ago, they closed on a $180,000 house near Indianapolis and a $558,000 detached condominium in San Diego.
Though the couple has more than $1 million in equity on their properties, they borrow as much as they can to still qualify for the best rates. "Then we ride the market until we can refinance with 20 percent equity," said Yvonne, adding that most of their loans are interest-only, five-year adjustable-rate mortgages.
What if prices don't continue to inflate has they have? "That would be a great time to buy."