What’s up, gang? Today I want to talk to you about the single best strategy there is for getting started in real estate investing. And it’s a strategy that if I would have known this when I was 18 and implemented it, I’d be a millionaire many more times over than we are now. So here are my five methods to house hacking your first investment property. And it starts now. All right. Now, before we get started, if you find the investor content that I’m starting to put out valuable, would you please do me a favor, please? Like the video, subscribe and hit that little bell notification for me. That gives me the feedback that I know that the work we’re putting in is reaching the right people.
And here’s the thing. I’m working really hard to put out valuable content stuff that is not theory based stuff that if you take action this is actionable advice that I’m giving you. So I want to put out stuff that would actually change your financial fortunes, assuming you have the time and the courage and the energy to put these things into place. So if that’s the case, please subscribe and I’d really, really appreciate it. So for me, I wanted the autonomy and the option to work for myself. I didn’t like the nine to five gig. In a matter of fact, it was more of like an eight to seven gig, which is really why I just wanted out of the corporate environment and wanted to get into real estate investing. I achieved that freedom through real estate investing, and so can you.
If you decide to get started now and do something each day to move your business forward and don’t give up, that’s the key. So let’s get into it. For those of you that are unfamiliar with House hacking, House hacking is a term to describe an investment approach whereby you purchase one to four unit property living in one portion or one unit, one section of the property and rent out the others such that you are offsetting your own personal living expenses while owning the property and allowing appreciation and debt paydown to work for you. Right. Because as you make payments, the debt goes down. Now, if you do this right, not only can you completely eradicate what’s likely one of your largest living expenses, i.e. your house payment, but there are some instances where you can actually make more than your mortgage payment, all the while still paying down the loan and realizing the potential of real estate appreciation, which we’ve seen is going at an incredible rate for like six years running now, appreciation has been through the roof.
So a lot of people say house hacking is not an option for them. And there’s a variety of excuses. I get all of them, so I’m kind of ready to deal with all of them. My location is too expensive or my spouse or my significant others won’t go for it. We have kids. It’s not in the cards for us. There isn’t enough inventory for house hacking to work. We hear it all the time from all directions so I’m here to tell you that there is definitely a method for you to do this. This is very doable. Where there’s a will, there’s a way, and all you need is just a little bit of can do attitude. Let’s talk about the five different methods of House hacking.
Traditional House Hacking
Method number one, the traditional house hack. I call it the traditional house hack because it’s essentially the most popular ones. The one that I usually get people started with. This is when you purchase a two to four unit property with a three and a half percent down FHA loan, three and a half percent down, small price to pay to get into a 300-400 $500,000 asset. So you live in one unit perhaps with a roommate and then rent out the other units, the rent from your roommate plus the rent from the other units should cover or pretty darn close to covering your entire mortgage. This strategy works great for low to mid price markets. We’re in Southeast Virginia. This is a great strategy for our market and as an example, Rachel and I are actually flipping a three unit property in Portsmouth, Virginia, right now as we speak. a half percent interest rate with a small down payment of three and a half percent, your mortgage payment would be around 1958 a month.
Now let’s say taxes and insurance, which will also get wrapped into that mortgage payment, are going to be another $350 a month. That puts your total monthly expenses at $2,308 a month. Now here’s the fun part. After pulling some comparables, the units on this building rent on average for 1200 dollars a month. So this is a perfect house if you choose to live in say unit one, you actually pick your unit because the house is vacant. So you go and you pick your unit and then rent the other two out for 1200 dollars a month.
Your rent would in fact cover your entire mortgage. And if you decided to bring in a roommate into the unit that you’re already living in, you’d actually get paid to live there. So this is an incredible way not to just significantly lower your expenses but to actually build the foundation for your long term wealth. It’s my opinion that those that are serious about creating financial freedom for themselves and their families via real estate should house hack a home at least once every two years. You move into it, you get at least up, you move out, you rent your old unit, and then you do it again and you do it again. And you do it again. Because over time, what’s going to happen is your rents are going to go up. Meanwhile, your debt is going down, which means you’ll start to see significant cashflow coming in monthly over time.
And then if you save that monthly cash flow, all of the excess money that’s coming in your rents above your expenses, you save that cash flow and purchase more property there’s a snowball effect that occurs invariably over time. And usually what happens is within about five to seven years, people start to realize that their job could very well become obsolete.
Rent by Room Hack
Number two, the rent by room house hack. So this is a great strategy where prices are extremely high and the barrier to entry is difficult. Places like New York, L.A., Chicago, San Diego, certain parts of Florida where demand is just through the roof and prices are really crazy. Purchasing a single family home, especially as a first time homebuyer, opens up a lot of financing opportunities. They’re 0% down options. There’s 3%. There’s three and a half percent down options on an FHA loan like we just talked about. There’s 5% down. Conventional options so there are a variety of things to consider that are low money in options when purchasing a single family home. So this strategy is very simple. You purchase a home, you live in one bedroom, and then you rent out all the other bedrooms.
The more bedrooms the house has, the more rental income you can generate pretty simple. In our market, you can get significantly more when you rent by the room versus renting the whole house. So for instance, a five bedroom home around where we live, maybe it’ll rent for 1800 to 2100 a month, whereas if you buy a five bedroom home and you rent out the rooms, you could probably get $700 a room. So as an investment strategy, not only will you likely get more rental income from house hacking a single family and then renting the rooms, but you’ll also see more appreciation if you’re purchasing a single family home because they tend to appreciate faster when compared to, say, a duplex a triplex or a quadplex. So this is a great strategy to get started when the area you’re in is super expensive.
I actually have a student who lives right here in Suffolk, Virginia. We helped him get a three bedroom home, his mortgages, I think like 950 a month.
He lives in one bedroom and then rents out the other two bedrooms for five to 600 apiece. Actually, D-Mac rents a room from him as we speak, so he lives there for free and his roommates are paying his house payment for him. That is not a bad gig, especially if you’re him.
Living Room Hack
Method number three, the living room hack. So this one’s fun. Because the living room is called the living room for a reason, right? So we’re always thinking about highest and best use with real estate, and that’s why we call this the living room strategy. I have several students that I’m mentoring that are using this living room strategy. And this is also another go to strategy where prices are relatively high. So I have a student that purchased a really nice duplex in Tampa, Florida, and rented out one side the actual upstairs. He rented it out on a long term lease. However, that rent didn’t nearly cover the entire mortgage, so he used the other unit. He rented out two rooms via Airbnb, so he did short term rental units on two of the rooms, and then he put up a wall, a divider in the living room to make one part his bedroom and the other part a living room to service the other bedroom.
So like I said, this strategy is really great for those markets where price points are just higher. He owned this property. He’s owned it for almost three years now, and his value is nearly doubled. He bought it three years ago for 350. Now it’s worth almost 600k so that’s $250,000 in tax free money. Meanwhile, he wasn’t making a mortgage payment and all it took was just a little bit of creativity and a little bit of patience.
Trailer Hack
He didn’t mind being inconvenienced by living in the living room. Again some of this goes back to how committed you are to beginning to build the snowball effect for yourself financially. So that’s the number four. And I like to call the No Excuses Hack. So for all of you, there’s like it can’t be done. I got one for you too. This is known as the trailer hack, and this takes hacking to the next level, but it exists for those that are in a spot where it’s extremely difficult to house hack. If you’re willing to do whatever it takes, there is always a method to get started. So here’s what it looks like. You can purchase a decent camper for probably $2,000.
You buy a camper, you park it in your driveway, or you park it in your backyard and you live in that and you rent out your main house. So I’ve seen people do this. I’ve seen people renovate trailers. Actually, I have a friend who’s renovating a trailer in his garage right now. So it’s super en vogue. Tiny spaces are like super popular. And you see it on HGTV, all the time. Like, people love tiny spaces. It’s all over the place. So you could actually use the trailer portion potentially as an Airbnb rental. So I’ve seen people that buy like a large plot of land to put out like five, six, seven, eight trailers. Now this goes into a whole thing of zoning. You have to figure out what the rules are in the particular place that you’re looking to do this. But if you need a strategy to get started, this is a very low barrier to entry. All you need is a couple thousand bucks. Some can do attitude and a place to put your trailer and boom, you are up and running as a real estate investor.
Accessory Dwelling Unit
Number five, this is the ADU house hack or accessory dwelling unit house hack. So this is when you purchase a property that comes with like a detached space, a garage, or maybe it already has a finished accessory dwelling unit. ADU. Or maybe you just decide to build one yourself. My very first investment utilize the ADU house hack approach. We had a detached garage in our backyard. We fixed it up, we rented it out and they paid for more than 50% of our mortgage payment for a number of years. We saved that money and then bought another property and then another one. All the unit needs is a small kitchenette and an operative bathroom and a comfortable bed to sleep in.
You rent that out full time or you Airbnb it while you and your family live in the bigger cozier home. So this method is best suited for those of you that have a family, have kids, have dogs so that you guys can have your own space while you’re still bringing in some passive income from your ADU and getting started in rental real estate investing. So there you have it the five house hack methods and as you can see, house hacking comes in all shapes and sizes. The strategy you deploy totally depends on your current situation. There’s typically a trade off in terms of luxury and return and the more sacrifice that you’re willing to make on the front end of your investing journey, the quicker you’re going to be able to build that cash flow, snowball effect momentum on the front end that we’ve talked about earlier so I hope you enjoy this video.
Please be sure to like leave a comment, hit that subscribe button as well. Thank you for watching. I’m Jonathan Beasley with ThatFitTeam, professionals in real estate and passionate about people. See you soon.
