Lesson One: Intro to House Hacking
Blog Version
All right. Welcome back, everybody. And thus begins our video series on house hacking. So what is house hacking? So the idea is relatively simple, right? We buy a single family home or we buy a multifamily property. We move into one of the units or one of the rooms and rent the others out to tenants. The rent that you receive from your tenant or tenants helps to cover and eventually cover completely the housing expenses of you, the owner. So this allows you to save all of that money that you would otherwise be spending on rent or on a mortgage and begin stacking up cash, building your wealth by reducing your monthly expenses while also building equity inside of the property that you’re living in that your house hacking. So with that said, it’s important that we set goals that are reasonable and attainable.
So it’s important to define what we consider a successful house hack. So for us, it’s really simple, really simple definition. A successful house hack is executed when it allows our clients to significantly reduce their cost of living while owning the home that they reside in. It’s a way of squeezing every last ounce of value out of your home that you possibly can in order to benefit financially. It’s what the smart kids do, basically. A home run house hack is a scenario where we entirely or almost entirely remove your mortgage expense from your monthly budget? That line item is completely muted or in some cases you get paid to live there. Now, that generally only happens with a multifamily property.
So like a two unit, three unit or four unit property. And when that happens, when you get paid to live there, that’s not just a home run, that’s a bases loaded bottom of the ninth Grand Slam home run. It literally doesn’t get any better than that. When you can get paid while owning the home, you get paid to live there for free. It’s crazy. Now, just like everything in life, house hacking does come at a cost. So there is some give and take. And in order to save on the financial side, sometimes you as the homeowner, have to be willing to take on a little more work. Maybe make some sacrifices and concessions, and give up a little creature comforts because you may end up having a roommate.
You’re definitely going to end up with tenants. And so these are things to be aware of, particularly when you get started that there are going to be some trade offs, but the trade offs are totally worth it. For the majority of Americans the housing expense is the single most expensive line item in their financial budget. I know it is for Rachel and I until we built some glamp sites on my property to offset our mortgage. I still practicing what we preach. So by attacking this huge number on your monthly budget, we help you improve your financial situation significantly and free up some money to save for yet more money to invest, hopefully its actually what you choose to do with it is save up this cash to invest in more real estate or to spend the money however you’d like to.
So let’s list or enumerate a couple of the ways that house hacking saves you money. The first, obviously we just talked about it. You lower your monthly housing allowance through generating revenue by renting out portions of your property rooms, units and that sort of thing. You also lower your taxable income base by acquiring extra tax write offs in the form of mortgage interest deduction. All of the interest that you pay on your mortgage is completely tax deductible. So if you paid $15,000 in mortgage interest and you made, let’s say $90,000 this year, you would not $15,000 off of that $90,000 taxable income, it would come straight back to you at the end of the year when you file your taxes. We also have folks that like to get a jump on their commute and move really close to work.
So folks that purchase homes, close to work, they cut down on things like transportation costs, car maintenance, gas, which is like crazy expensive right now. And also another thing that’s awesome about house hacking is learning to be a landlord and just transitioning into the world of real estate investing. Essentially, we’re trying to get you started as a real estate investor and house hacking is a perfect entry point. All right. Now let’s talk about something that is, in my opinion, the greatest wealth lever that I know of in the investment space across any asset class, and that’s the VA loan. So let’s talk about leverage. If someone’s buying a $500,000 home, generally speaking, if it’s an investment property, they have to put down 20 to 25% as a down payment.
So on a $500,000 home, that would be $125,000. That’s essentially getting four x leverage. Right. The investment that they control is four times the amount of money that they actually put down in order to buy it. But for our clients that have a 0% down VA loan option, you can purchase that same $500,000 asset with no money down. House hacking using 100% finance VA loan option gives you the best investing leverage position that exists in any asset class. I can’t think of any other place where you essentially have unlimited leverage on your money. It also allows investors to save their capital for other uses and even better uses, and allows those who aren’t in a position with large amounts of expendable capital to still make their way into the housing market and into the investing world, or, as my daughter would say, sickies miquickies!
So in the next video, we’re going to be talking about what types of properties we’re going to be looking for and how to maximize the house hack strategy to get you the most bang for your buck and the highest possible revenue. Until then, Jonathan Beasley signing off.
