Lesson Two: 7 Types of House Hacking
Blog Version
All right. So we’re moving forward in house hacking. Now we need to discuss what types of properties are ideal when we look to house hack. So from personal experience, Rachel and I have done a lot of this over the years, both ourselves and with clients. And we’ve learned that there are some specific types of properties like very niche property types that work absolutely best for the house hack strategy. And these patterns, if you want to call them, routinely pop up. When we have really successful clients that do a great job house hacking. So the entire idea of a successful house is to find properties with as many spaces as possible that we can use to generate the highest amount of revenue possible. So these can be additional units in, say, like a multifamily property, like a duplex triplex or quad plex.
If you go over four units, you get into the commercial space. So we can’t really go that direction, but we can go as high as four units. You can also use extra bedrooms in a single family house and rent those out and you can use additional spaces that can be converted into bedrooms or additional units that can be converted into livable space. So some of the very best deals that we’ve ever gotten our clients into have been a hybrid of these strategies and combined in sort of conjunction in tandem with each other to create massive value for our clients. So here are the seven property types that work best with house hacking, and these are the property types that we are specifically going to target as we get started in our house Hack home search. Number one and it’s number one for a reason: multifamily properties.
So anything that’s two, three or four units is considered a multifamily property and they make a great option for housing hacking. Because generally speaking, more units is better than less units. It’s just a general trend. Not always true, but it’s usually true. So this means a triplex is better than a duplex and a four plex is better than a triplex. So we’re going to set up a home search for multifamily homes and then we’re going to analyze these homes to find out which will end up giving you the lowest housing expense. At the end of the day, remember, the goal of house hacking is to significantly reduce your cost of living while owning the home that you reside in.
And it’s not necessarily to buy the prettiest house. So remember, there’s definitely some give and take. And this is a financially driven decision that we’re making. It’s not going to be necessarily the house that we fall in love with the most. We’re actually going to be looking at the numbers and fall in love with the number. So small multifamily properties, 2 to 4 units were literally designed for the purposes of house hacking. That’s what they’re for. So we always start there first. When it comes to analyzing them, there are a few things to keep in mind, but first and foremost, neighborhood and location where they’re located is super important because if it’s possible, we like buying multifamily properties in neighborhoods where the multi’s are mixed in with single family residential properties.
Ideally don’t want to buy in a neighborhood that’s like exclusively multifamily property. The diversity of style encourages less investors to flood the area. It also encourages pride of ownership, which also helps to push values higher and higher. So location is something we’re really dialed in on and if we can, when it’s possible, we actually want to be in a residential neighborhood with just some multifamily sprinkled in.
Number two is additional dwelling units or ADU’s, actually no accessory dwelling units ADU’s. So we have a couple of properties that have ADU’s and we love them. Absolutely love this strategy. Usually it’s when like a detached garage has been converted. An ADU is a detached structure on a particular property and it’s usually in the backyard and there’s already plumbing, electrical and other utilities and necessities required for habitable dwelling in that structure. So sometimes they’re also referred to as a guest house or guest homes. The ADU’s is a space that can be lived in or it can be rented to create additional revenue. We’ve actually had clients that move into the ADU and then rented out the large house to maximize their revenue just all kind of depends on what you’re interested in able to do, but ADU’s can be furnished and rented on OTA’s, online travel agencies like Airbnb or VRBO. That’s actually the strategy that we’ve exercised. So Furnished Finder is another good one if you want to rent to traveling professionals. So if the demand is there, the revenue on a short term rental, particularly in the ADU strategy can really improve the revenue on your house hack. And since Rachel and I are like really experienced, I think we have this point 14 or 15 short term rentals.
We have a lot of experience in that realm and we can actually help you run comparable analysis to predict what your future earnings might look like if you decide to go the short term rental route and furnish the ADU so we can actually help you establish upfront before you buy the property what type of revenue it would generate as a short term rental.
Number three, multiple bedroom houses. So let’s say we struck out on the multifamily stuff. We couldn’t find any multifamily that we like. Or properties that have been modified to function as such. We also didn’t find anything that has an ADU your next best bet is going to be to find a single family home with as many bedrooms as possible. Since the bedrooms are essentially what you’re going to be renting out, it’s important to keep in mind a home with more square footage, but less bedrooms isn’t necessarily better. The same principle applies here as well as it does in multifamily properties. Three bedrooms are better than two bedrooms. Four bedrooms are better than three bedrooms. Obviously, five or six bedrooms are perfectly ideal, especially if you’re going this route and don’t mind having roommates as tenants.
We’re going to concentrate your search on the homes with the most amount of bedrooms that are available in your price range and then work backwards from there when we do our analysis. Sometimes buying a more expensive home with additional bedrooms to rent out actually makes your overall housing cost much lower. And this is where running the numbers actually really helps a lot because going up in budget actually might be the best way to lower your expenses. Number four: areas that are easily converted to bedrooms. So if we can’t find a property with a large number of bedrooms, we’re going to make a property with more bedrooms. So properties, for example, we’ve converted dining rooms into bedrooms. Actually there’s property by a local university was a four bedroom. It had just a random extra space that wasn’t doing anything. So we converted that into a five bedroom and we rent to students.
Two. This can add significant value to the home’s price, while also adding income that can be generated from the additional living space. So this is where working with us having some creative ideas is really going to help you. So we target three bedroom homes that are, for instance, maybe 2500 square feet or 2800 square feet, because at that level there’s almost invariably going to be a space that we could convert to a bedroom. So a lot of times what we’ll do is target, let’s say, a three bedroom house that has more square foot than their neighbors. So if you notice, the usual three bedroom home in a particular area is, let’s say, 1500 square foot, we will be keeping an eye on anything that’s bigger than that. So let’s say there’s a 2000 square foot house that’s a three bedroom or 2400 square foot house that’s a three bedroom. Generally speaking, there’s going to be a space or spaces that can be converted into more rooms. This is especially helpful if you pay for a three bedroom house, but end up with a four bedroom house because the savings really add up when you consider the mortgage interest that you’ll be saving up over time. And you could actually make the home more valuable by adding that fourth bedroom as well. So it’s kind of a win-win.
So, number five, this is more of a thing to avoid than it is an approach to look for in terms of the house hack. But we’re going to avoid areas that restrict house hacking and tenants in general. So some POA’s, property owners associations, don’t allow for non owner occupancy.
So these areas don’t make a lot of sense for house hacking. And on a similar note, a lot of neighborhoods don’t allow for short term rentals whatsoever. So these localities can sort of limit our options to generate revenue and we have to be very considerate on a case by case basis when going into a neighborhood with an HOA or POA. Not every area is equal when it comes to house hacking. So we have to be really scrupulous. Other things to keep an eye out for are adequate parking spaces safe neighborhoods obviously where you feel safe and your tenants feel safe and crime is low and areas that are too noisy to sleep in like a railroad, an airport or a freeway. And you might occasionally have a tenant that like works at night and sleeps during the day. So you want to be relatively peaceful. So we want to make sure that the area that you’re buying in will be a place that tenants want to live and there’s no unnecessary restrictions on the particular use that we’re going to be using the property for.
Number six houses with adequate living space. This is a big deal. The number of bedrooms is the first thing we look for, but we also want to concentrate on houses with a lot of living space to allow your tenants to live comfortably. Homes with, let’s say, like upstairs lofts or big family rooms, living rooms, formal dining rooms, breakfast nook, that kind of thing. Outdoor deck areas, Outdoor living space is huge, especially if you want to maximize your revenue and income. People will pay more if they have an outdoor place to like have a fire or hang a TV and that sort of thing. So you want people to be able to lounge comfortably and not be confined only to their bedrooms. At least that’s the ideal scenario. Those are great selling features to your future tenants that allow you to charge more for rent and really keep tenants for longer periods of time. If they really can make it their home Number seven houses with in-law suites. So this is something we’ve done a lot of personally. It’s been one of my personal favorite strategies because there’s a lot of existing homes that were either built with an independent in-law suite with its own ingress egress, which is a fancy way of saying entry and exit, but it’s also something that you can easily convert to if the House is set up correctly and these in-law spaces make for great rental opportunities.
We currently own four single family houses, I think, where on one side we have a long term renter and the in-law suite is a furnished rental and we rent it out on an OTA, an online travel agency like Furnish Finder or Airbnb. Our favorites actually furnish finder, but Airbnb is a good supplemental lead generator as well. So those are the seven types of houses that we are going to specifically target for you house hackers. And that’s how we’re going to get started. So I look forward to seeing you guys on the next video.