As a housekeeper, Johnny Sanphillippo couldn’t afford to buy an apartment in San Francisco, but then he heard one of his employers talking about wanting to sell his five-unit building. He also knew (from cleaning) that all the tenants were moving out so he organized a group of friends to move in, and pool their resources to buy the multi-unit property collectively: in San Francisco, this is a TIC (tenancy in common); in New York, it’s a coop.

“There’s an economy of scale associated with buying a single structure compared to five separate small homes or five scattered condos,” he writes on his blog Granola Shotgun. “The cost per apartment is significantly lower when bought in bulk. Plus, a collective purchase with a group of friends meant dividing the down payment and monthly expenses into smaller more manageable portions.”

Unfortunately, no bank would give them a mortgage. “A property that has four or fewer apartments is treated the same as a single-family home for lending purposes. But five or more units require a commercial loan. So we created a pro forma and told the bank we were investors looking to be slumlords and this building would cash flow. They loved that idea! Because… that’s how the world works.”

They secured the commercial loan and began renting the apartments back to themselves. Each apartment’s share of that single monthly loan payment was $900. At the time, the average rent in the city was $1400.

The building’s former landlord, Michael Castleman, who was one of the 5 investors (he kept ownership of one of the units) explains that anyone with a group of friends they trust could make the same move. “It’s called a Real Estate Development Partnership and you would approach a bank and say we’re a Real Estate Development Partnership and you could see if you can get a mortgage. Then the Real Estate Investment Partnership leases units… you basically rent from your own organization.”

One of the owners/tenants, Kevin, explains that “the key to buying a place with people is hopefully having a good group of people you bought with and just being flexible and understanding of people because you’re living in tight quarters, you’re relatively close to your neighbors so it’s just finding a way to get along with them. You get like-minded people with like-minded goals and you find a way.” The group did finally condominium-ize after a 14-year wait.

Without necessarily defining it as such Johnny has achieved FIRE (financial independence, retire early). He started out saving money by renting a “little 9’ x 18’ (15 m²) garden shed behind an old Victorian in a questionable neighborhood” and owning a bike instead of a car. From there he invested where he could (i.e. outside of San Francisco) and finally found this collective ownership to get into the city.

Here’s his advice to others “who are pissed off about the high cost of housing and feel locked out.”

1. Consider living below your means and doing without certain things in order to make saving for a house the bigger priority.
2. If you can’t buy in the expensive location you really want, buy elsewhere. Then find a way for that property to generate income while you continue to be a renter yourself in the more expensive spot.
3. Work cooperatively with like-minded people to buy a share of a building collectively in a mutually beneficial arrangement.
4. Save and prepare for the next market correction. There’s ALWAYS another crash on the horizon – and that’s a good thing. You can’t time the market on the way up, but you know for certain when the crisis hits. Then scoop up a bargain.
5. You don’t need as much house as you’ve been led to believe. Instead of trading up for a larger fancier house with more debt as you age, consider living simply and buying additional homes for diversified income.

*For more see Johnny’s blog post “The Carpetbaggers Guide to Home Ownership”.