At 24 years old, I bought my first house hack. I bought a duplex that was in the process of being foreclosed on. The duplex cost $240,000, and I was able to purchase it with a 5% down FHA loan, meaning that I brought just $12,000 to closing, which was much of my first year of savings out of college.
I put just 5% down on my mortgage, so I had to make a $1,550 monthly payment, which included principal, interest, taxes, insurance, and PMI. I was relieved to find that my mortgage payment was within my budget.
Half of my 2 bed, 1 bath unit was rented out for $550 per month, and the other half was rented out for $1,150 per month. I was able to get 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 888-739-5110 I was collecting rent on my mortgage at that point. I broke even after my portion of the utilities. I was not paying rent. I was able to save a lot of money because I didn’t have to pay rent.
What is House Hacking?
House hacking is having your cake and eating it as well. A mix of personal residence and investment property is what it is. It can be a great way to build wealth and provide a place to call home.
House hacking occurs when you buy a piece of investment real estate, live in one of the units or bedrooms, and rent out the others.
The buyer can usetenant rent to pay down the mortgage and live for free. It is a great way to build wealth over time, as the tenant’s rent payments can help the homeowner pay off their mortgage faster. The buyer can benefit from potential appreciation.
The real estate market has accelerated at a faster rate than our careers have. To maximize your earning potential, you need to keep up with the changing market by taking the necessary steps. Houses are seen as an asset and a retirement plan.
5 Reasons to Start House-Hacking
There are many benefits to house hacking, here are the top 5:
1. Eliminate Your Biggest Expense
Many people cut back on unimportant parts of their budgets. We are told to cut back on happy hour, bring lunch to work, and not drink from Starbucks. It will be beneficial in the long run. We’re told that disciplined saving—of at least 15% of our incomes–is the way toward wealth and early financial freedom.
Saving 15% of your income is too slow. Saving 50% of your income for optimal financial growth is what you should do. Sure, you will be able to retire in 30-40 years if you invest conservatively, but you can cut decades from that time frame by getting more aggressive. Alternative strategies can help you reach your retirement goals faster.
You should be saving at least 50% of your income. You should do it without cutting back on your spending. There are ways to save money without sacrificing what you enjoy.
The government (specifically the bureau of labor statistics) provided the data in the chart to the right, so naturally, taxes are not included. We can clearly see where the Average Joe spends most of his money. It’s true for those who are living paycheck to paycheck as they struggle to make ends meet.
Half of the typical American’s expenses are related to housing and transportation. A person’s monthly budget can be affected by these two categories. The majority of spending is on housing. A significant portion of households’ budgets are spent on housing costs.
Preparing your meals instead of going out to lunch, going on inexpensive vacations, and cutting back on your entertainment budget is fine, but why sweat the small stuff when a third of your spending is going out the window every month? If you pay attention to where your spending is going, you can save a lot of money.
If I told you that you could live for free, what would you do? It will make a difference in your budget. It’s a great way to save money. House hacking can help you build wealth. It’s a great way to start your financial journey.
2. Increase Your Savings Rate Substantially
We now know that house hacking lowers your monthly costs. Extra money in your budget can be freed up by house hacking. The result is that you can save more money by allocating towards your next purchase. Real estate is a great place to build wealth. In fact, house hacking can be the perfect side hustle.
While already a strong saver, I was able to substantially increase my savings rate in the absence of a rent or mortgage payment, allowing me to stockpile cash very quickly. I wouldn’t have been able to do that if I hadn’t been able to put a significant portion of my income towards investing.
The combination of my hard work improving the property, market appreciation, loan amortization, and my rapidly improving financial position enabled me to refinance my loan to remove private mortgage insurance in just 15 months. I will be able to pay off the loan in full in less than 15 years.
Rents went up and my payment went down, so I was able to make more money from the property. I was able to cover the costs of operating and maintaining the property thanks to this extra income. In a problem-free month, I collect $1,200 from this one property. I’m confident that my income will increase as rent prices continue to rise.
I bought another duplex and repeated the strategy. I decided to repeat this strategy again because I was so happy with the success I had achieved with my first duplex. I plan to buy a new rental property house hacking style every 18 months. By house hacking, I am able to take advantage of the tax benefits associated with real estate investing while building my portfolio quickly.
It is easy to save for the next down payment, even in the expensive Denver market, when you don’t have to pay rent or mortgage at all, and have thousands of dollars in passive income from the first few house hacks!
3. Cost Savings on a Bigger or More Expensive Home
Mortgage payments can be expensive, having a separate unit paying rent will decrease your month-to-month costs, this is obvious, but consider this:
House Hacking will allow you to pay LESS month-to-month, even while buying a The house is more expensive. The cost of the house was higher than expected, making it more expensive than similar houses in the area.
The following is a cost breakdown of buying a starter home for $300,000 vs a A multi-unit home is $400,000. The monthly mortgage payments on this multi-unit home are estimated to be reasonable.
In this scenario – Buying a home worth $100,000MORE can save you money. Making the investment in a home can provide long-term financial benefits, making it an attractive option for many. Think about that. You pay more upfront to save money in the first year. It is possible to start building equity in your new home by making this up-front investment. You get your money back in 6 months. You can make more money by earning interest on your investment. You now own more valuable property as well. You can use your newfound wealth to invest in other real estate opportunities. I will break down the other profit centers in the article. You can build a foundation for a more secure financial future with the help of these profit centers.
House hacking is a big reason for its popularity. House hacking is a great way for first-time homebuyers to get a feel for the real estate market and explore various investment strategies with minimal risk.
4. Home Hacking Gives You More Flexibility
Significant changes in your life occur in your 20s and 30s. It is an exciting time for personal growth, new opportunities, and important decisions. If you are like me, you have commitment issues. I like to take things one day at a time. I haven’t left my parent’s house because of this. It’s difficult to commit to a home long-term. I don’t know if I’m ready to take on the responsibility of owning a home. I don’t mind committing to something long-term if it pays me every month, which makes house hacking and investment properties so attractive. Investment properties are a great way to grow my wealth over time.
House Hacking provides the flexibility needed to create a living experience that suits your life as you evolve.
- Want to save the most money possible? Live in the least desirable unit in your home, in the basement, or even on the couch if your roommates are down with it.
- If you feel like you deserve the nicer suite, upgrade yourself and rent out the less desirable unit. Renting out the less desirable unit will allow you to experience the nicer suite that you deserve.
- Want a new place and maximum money saved? Rent your less desirable unit, and get a roommate for your unit.
- If you are only comfortable with exclusive access to the backyard and driveway parking, what do you do? If you are not comfortable with tenants using the backyard or driveway, make sure to include a clause in their lease that outlines the exclusive use for yourself.
- Received a Job offer out of town, what now? Rent your unit out, move, and use the cash flow towards your rent elsewhere while you figure out your next move.
- You love the neighborhood and don’t want to move, but your family has grown ….Convert a multi-unit to a single-family residence and stay in the neighborhood you’ve grown to love.
House hacking will not leave you stuck in one place facing a mountain of debt. It’s a great way to start your journey towards financial freedom and security. It is a no-brainer for people to build wealth. It is possible to get started on building wealth by investing in stocks and shares.
5. Financial Growth Through Passive Income
There are several ways that this passive income strategy can grow your finances.
Benefits of Increased Principal Paid Monthly
Your mortgage payment is still higher even though your personal month-to-month costs are lower. In order to cover the increased cost, you may need to adjust your budget. You are paying more principal towards your mortgage if you choose a more expensive property. Even though we pay less per month, we are still paying more than $200 per month. We could save on interest payments by paying off the loan sooner.
The result is an additional $12,000 in equity paid down after 5 years. This is an excellent way to build wealth, as it not only reduces debt but also increases home equity, all while saving more month-to-month. With your savings, there is more savings to be had. You can use coupons, discount codes, and other incentives to maximize your savings and get even more bang for your buck.
Increased Benefit from Appreciation
I’ll make this simple – The return on your $300,000 starter home and $400,000 duplex would be greater if they both appreciated by 6%. The $400,000 asset is correct. A major boost to the company’s bottom line is this asset.
The difference gets larger when you factor in compounded year over year. When you consider the long-term effects of compounding on your investments, this is especially true.
Ability to Refinance & Maintain Cash Flow
If you purchase the correct property, you will be able to receive a healthy amount of cash flow above your monthly expenses. Real estate investing can be lucrative and rewarding.
If you have a healthy cash flow, you can use it to place a down payment on your second property. This will allow you to build a portfolio of rental properties and increase your wealth.
If you make enough cash flow above your expenses you will be able to break even on your first property with an increased mortgage payment. The key to making this work is to manage your cash flow by budgeting your expenses and investing any profits you make back into the property.
Building a portfolio of property as you upgrade from home to home will act as the building blocks toward your retirement, children’s future, or whatever project is more in line with your goals. Real estate investments require patience, research, and dedication in order to be successful.
Why Don’t More People House Hack?
If house hacking is such a great idea, why don’t more people do it? Knowledge of the real estate market and a certain level of financial stability are required for house hacking to be a great tool for savvy investors. I don’t know why this isn’t more popular, as it seems to me to be an obvious way to easily build wealth, and the most straightforward way to move towards early financial freedom.
If you are an average saver with good credit and a good job, this can be done with very little effort. Investing in real estate can increase your financial security in the long run.
Sometimes I hear arguments against house hacking. I think it’s important to weigh the pros and cons of house hacking before making a decision. Here are three:
1. “Won’t I be responsible for maintaining my property?”
Yes, you will. It is your responsibility to make sure that everything works well.
I encourage you to understand that every single homeowner in the world is responsible for basic maintenance and that you should not be afraid to call the handyman or electrician if you have a problem. It is possible to prevent larger, more costly issues from occurring down the line if you make small repairs and maintenance a part of your regular home care routine. Consider it a high paying job. This job has become so sought-after because of the attractive salary and benefits package.
If you are able to live rent-free in a space that costs $700 per month, and you have to do 1 hour of work every month to maintain your property, that’s $700 per hour!
2. “What if the tenants don’t pay rent or I don’t like them?”
The beauty of house hacking is not a downside. By house hacking, you can save money and live in your own home at the same time. You can choose your neighbors. You can make new friends and build relationships in a community, and you can choose your neighbors. Too many people think that they have to manage tenants. There are services that landlords can use to manage their tenants.
It is much better than that. It’s a life-changing experience. You can choose quiet, friendly neighbors that will be kind enough to pay down your mortgage for you and treat you with respect. You can evict them if they don’t.
It is wise to learn how to properly manage tenants by reading a book and asking local landlords how they handle problems. A good landlord-tenant relationship is based on mutual trust and respect, so it’s important to set clear expectations from the start. Managing tenants should not be a problem for people who are willing to act rationally.
One of the best ways to build wealth while working a full-time job and living your life is through tenant management. By learning how to manage tenants and understand the rental market, you can build a profitable and stress-free source of passive income.
3. “I don’t want to live in a crappy investment property!”
That is my home, you are talking about! If you stopped speaking like that, I would appreciate it. All kidding aside, buying a house hack, like buying a home, falls across a spectrum. I was able to live rent-free in a more up-and-coming neighborhood. He needs a landlord who is willing to accept a tenant who is willing to do some light renovations in exchange for free rent.
The guy that house-hacks in a more posh neighborhood can still live there for less than others in his market. This is an attractive prospect for people who want to live in a desirable area but are on a budget. He is still living in a great spot and/or a luxurious space if he lives in a place with a $3,000 mortgage and only collects $2,500 in rent. He can use the extra $500 to pay for maintenance, renovations or other investments that will increase his rental income and property value.
Don’t tell me there are no investment properties in your market. You might be surprised to find some great opportunities if you do your research. Deals are hitting the market in Denver every day. I’m looking forward to taking advantage of the opportunities presented to me. That tells me that you have dismissed the idea. You are unwilling to think about the benefits this could bring.
Top 3 House Hacking Books
If you want to learn more about aligning house hacking with your ideal lifestyle, check out these books. The books will give you the knowledge and tools to begin your journey in house hacking.
- Set for Life: Dominate Life, Money, and The American Dream by Scott Trench
- The House Hacking Strategy by Craig Curelop
- Retire Early with Real Estate by Chad Carson
Live For Free & Invest in Real Estate Using Other People’s Money
The month-to-month costs are determined by the type of home you buy.
House hacking can suit any lifestyle, and will keep you flexible enough to pursue many opportunities that will come your way in life.
Buying an owner-occupied investment property and renting out the additional bedrooms and/or units is the single most effective hack that a median wage-earner can make to begin moving towards financial freedom rapidly. This strategy can generate enough passive income to cover your living costs if you pick the right property.
It wipes out the largest expense in your life. If you can save yourself tens of thousands of dollars a year through house hacking, why wouldn’t you want to stay disciplined day in and day out? By house hacking, you can enjoy the same level of fun and entertainment as your peers while also making an investment in your future that will pay off significantly down the line.
There is a lot of upside to this strategy. It can be a win-win situation if it is executed correctly. Even if the market crashes, the house hacker stands a good chance of keeping his head above water. Because the house hacker’s investments are diversified, a downturn in one market may be offset by an upturn in another. Rent from his tenants helps offset his payment. His friends who own single- family homes with no tenant assistance will be more devastated than him. He hopes his experience as a landlord will help him weather the storm, but he knows it won’t be easy.
This is the ultimate low-risk, high-reward way to buy your first or next property if you want to fast-track your financial freedom.
