Tag: multi family

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Financial Independence Core Principle #3: Eliminate Your Largest Expense By House Hacking

Third and final core principle. House hacking is by far the most powerful way to begin your investing journey. When you think about getting ahead in your investment journey, eliminating your largest expense by house hacking becomes powerful. For 99% of people, the largest monthly expense you have is housing. If you are able to eliminate your largest expense by house hacking, you will put yourself in a position to aggressively save.
 
What Is House Hacking?
Let’s first answer what house hacking is. I go into much further detail on house hacking and different ways to house hack in this previous post. In the most simple terms, house hacking refers to purchasing a single family or multi family home and renting out portions of it. There are many different strategies to go about doing this, but the concept is to reduce your living expenses. The best house hackers are able to live for free or even make a little bit of money from their home.
 
Common Excuses to Not House Hack
What are the most common excuses I receive when I tell people that I house hack?
  • I have a family and wouldn’t feel comfortable house hacking.
  • Renting is just more simple and I don’t want to deal with a home.
  • I enjoy living on my own and don’t want to live with others.
  • Roommates? Yeah, I graduated from college already and I am a grown adult. I want my independence.
  • I don’t have the money to buy a home.
  • I don’t make enough to buy a home right now.
Cool, so what I hear is you have a fixed and limited mindset. Awesome. Just make sure you are aware that all the above excuses are those of people having a fixed mindset. These are all excuses and not valid.
 
Have a family and don’t think it is safe? Buy a multi-family property and you will have your own space. Even a single family home with a detached 1/1 unit would do.
 
Don’t have the money? Money is abundant and available these days. Stop making this excuse. If you had to raise $20,000 tomorrow to get in a deal that could pay off hundreds of thousands of dollars, would you be able to get the money? It isn’t the fact that you don’t have money, it is that it’s easier to make this excuse.
 
I don’t make enough money. Interesting, did you know lenders can help qualify you for a loan with the rental income counted as part of your income? Stop with the fixed mindset.
 
Why Is House Hacking A Core Principle
House hacking is a core principle because I simply don’t see why you wouldn’t do it. It makes too much sense to do. There are many different ways to effectively house hack. Any and all excuses you could have for not house hacking are just that, excuses.
 
I wish I knew about house hacking even when going to college. I would have bought a property in Buffalo, Arkansas and then Bethlehem, PA when I lived in each. Now that I have learned and successfully house hacked my first property, it is time for more.
 
How Am I Currently House Hacking
Want to hear the full story about how I got started house hacking? Checkout my recent podcast I was interviewed on where I speak about exactly this.
 
When I moved to Florida, I purchased a single family home in a nice area. I had no intention of house hacking at the time because I had never heard of it. I knew I wanted to buy a home versus renting an apartment. I was tired of paying someone else’s mortgage. I stumbled into house hacking when a friend of mine asked to come down for a few months. From there, I took it and ran with it.
 
My current house hacking strategy is renting out by the bedroom. I live in the master bedroom in my home and have three other bedrooms I rent out to young professionals living in the area. I bring in $2,400 per month in rent on a mortgage of $1,650. After all expenses, I typically make $100-200 per month. That is right, I get paid for the privilege of living in my own home!
 
My Next House Hack – Changing My House Hacking Strategy
For my second house hack, I plan to leverage a different strategy. I am planning to buy a multi-family property where one of the units is a 1/1. The goal is to get one of the following:
  • Single family home with a detached 1/1 unit
  • Duplex with one unit being a 1/1
  • Triplex of any kind with one unit being a 1/1
This next house hack will be a big step in my continued venture in investing in my financial independence. I am excited for the next steps in my journey and hope you seriously look into house hacking.
 
Key Takeaways:
  • Your largest expense is typically housing. For that reason, you should look to eliminate your largest expense by house hacking!
  • Stop making excuses on why you can’t house hack. I can find a reason why every excuse is not valid.
  • There are many strategies. Each can be used depending on your life situation and market you live in. Don’t think there is only one way to do this successfully.
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How to Eliminate Your Largest Monthly Expense – Different Ways of House Hacking

The typical American spends 30% of their take home pay on housing. This isn’t a bad thing, but it is the simple truth in America right now. To eliminate your largest monthly expense, opens you up to many investing opportunities. Want to have a high savings rate and be able to invest more? Eliminate your largest expense. For 99% of Americans, the largest expense is housing.

How To Cut Your Largest Expense

There is one very simple way to cut the largest expense you have every month. House Hack! No reason to over complicate things. Let’s keep it simple.

What Is House Hacking?

House hacking is a term coined by Bigger Pockets that describes living in a home and renting it out. There are a few different ways to go about house hacking. Let’s highlight each one of them.

Strategy 1: Purchase a Duplex/Triplex/Quad

The first strategy involves purchasing a multi-family property. The goal is to buy a property where you can live in one of the units and rent out the other unit(s). This allows you and your family to have your own privacy in your unit. I highly recommend this strategy if you have a family and privacy is important to you. Many markets have multi family properties where this strategy will be effective. If you are able to either cover your mortgage, or come close to it, you are winning.

Strategy 2: Purchase a Single Family Home and Rent Out by Bedroom

This is a little different of a strategy more commonly used by a younger professional. It is also commonly used by someone just graduating college and used to living with roommates. This is the current strategy I am implementing in my first house hack. There are a few things you need to ensure before implementing this strategy.

First, you need to ensure there are no restrictions from your HOA to rent out by the bedroom. There are certain HOA’s that have clauses in their contract to prevent people from doing this. If the property has an HOA, make sure to read through their documentation.

Second, make sure there is enough parking space at the home. It is important everyone has enough parking at the home. Ensure you have enough parking where you wouldn’t cause a nuisance to neighbors. This will help ensure you and your neighbors get along.

Third, try to find an optimal floor plan to prevent more than two rooms sharing a bathroom. Convincing someone to share a bathroom with more than one other person is difficult. It is possible, but just more challenging. Having three people share a bathroom would also cause rents to be lower.

These are all important things to think about if you want to implement this strategy.

Strategy 3: Purchase Single Family Home With Mother-In-Law-Suite

This is a strategy I am looking into for my second house hack. I would prefer a multi-family, but I can also look at properties having a mother-in-law suite. The thought here would be to rent out the Single Family Home and live in the suite. This would be great for markets where many are looking to rent out an entire home and it’s common to have a mother-in-law suite.

Key Takeaways:

  • Focus on the elimination of your largest expense. Housing.
  • House hacking is the single most powerful tool you can use to be able to invest more money. The more money you don’t spend on housing, the more you can invest.
  • There are many ways to eliminate your housing expense. Explore the different options that might work for where you live.

Don’t forget @TheYoungRetireeBy33’s 3 Core Principles:

1 – Your money should make money for you⠀⠀⠀⠀⠀⠀⠀⠀⠀
2 – Start early to realize the power of compound interest⠀⠀⠀⠀⠀⠀⠀⠀⠀
3 – Eliminate your largest expense by house hacking