How to 2X Your Cash Flow (or More) on the Property You Already Own (Rookie Reply)

0:00What if you could take the exact same property you were already looking at and rent it out for two to three times more than a standard single family rental without buying anything bigger or more expensive. And what if not having money for a down payment is not actually the thing that's stopping you? I mean, there are creative ways to get into your first deal right now that most rookies might never even.

0:27This is the Real Estate Rookie Podcast. I'm Ashley Care. And I'm Tony J. Robinson. And rookies, today we are answering three questions coming straight from the BiggerPockets community. And they line up with topics that we've been getting the most questions about lately. co-living, getting into your first deal with limited capital, and a strategy that is genuinely one of the most overlooked cash flow plays in all of residential real estate. So let's get into it. Our first question today comes from the BiggerPockets forums and it says, I keep seeing people talking about co-living and renting by the room as a way to dramatically increase cash flow.

0:59I own a three bedroom, single family home that I currently rent to one family for$1 ,600 per month. Someone told me I could potentially rent the same house by the room for $600 to$700 per room and make close to double? Is that actually realistic? What does it look like to transition from a single tenant model to a buy the room model? And what are the biggest things I need to think through before I make that change? This is great. I think we've heard a lot about co-living over the last couple of years and Bigger Pockets actually has a guide that was authored by Miller McSwain, who we've had in the podcast a few times.

1:34So if you want to learn more about co-living, you can check out the Bigger Pockets bookstore and find that guide by Miller McSwain. But let's talk about what co-living is first and how it's different from traditional long-term rentals. Co-living is a strategy where instead of renting your entire three-bedroom property to one tenant, to one family, you individually rent out every single room. So you rent out bedroom one, bedroom two, bedroom three. There are some folks who kind of take this to an extreme, Like we've interviewed the Nossams and their strategy in the Pacific Northwest is they'll buy, you know, a four bedroom and convert it to an eight bedroom.

2:11Right. And they're converting, you know, the formal dining area into sleeping spaces, maybe the garage into like a converted bedroom as well. So they're taking four bedrooms and making it eight, but then effectively renting out every single space that's that's there. And the benefit to the point that was made in this question is that when you rent by the room, in a lot of scenarios, you can actually make more money than renting out the entire space. So that is the idea behind co-living and why it's important. Now, the demand for co-living, I think, is also growing because people want more affordable places to live.

2:46and if you can get them into a nice neighborhood, into a nice home, uh, for a fraction of what it would cost them to, uh, to maybe rent an apartment, uh, by themselves, that is something that a lot of folks are looking for. And maybe it could be folks who are young professionals just getting started in their career. It could be people who are maybe living there temporarily for work, right? Like they're only going to be there for six months to a year and then they don't want a big place of their own. Um, it could be people who are in transitional housing, right? Like maybe they, they're just recently divorced.

3:14Maybe they, uh, whatever it may be, right? They're, they're in some sort of life moment where they just need something for the short term. But there's a lot of demand, and I don't think we'll ever lose demand for affordable housing. So there's a lot of upside, both to you as a landlord and to the tenant when you can do co-living strategies correctly. I think the piece that I think about most with co-living is the operational difference from renting to a single tenant to doing room-by-the-room model. So you're collecting rent from multiple people instead of just one tenant that's in that one unit.

3:45But also you're now having to manage these people, manage the common areas. They don't get along what happens. So I think there's maybe more management at first or at least putting in the operational pieces as to who buys the toilet paper for the one shared bathroom, who's cleaning the bathroom. And we've had so many guests on that share the different rules, the, you know, the different operational models that they have for some of these things. Some landlords will supply all of the paper products for the house. They supply the toilet paper, the towels. Then they also have, we've had guests on that they split it.

4:31So they are in charge of splitting it and supplying it. And then we've had tenants that just, they are guests on that are just bringing it for themselves. They have their own toilet paper. I don't know if they take it into the bathroom with them and then take it out with them. But there's so many different ways to actually set up the co-living model that I think that is probably like the biggest difference from just renting to, you know, one person or one family that's going to be living in the unit is really setting up how that operational piece will work. Yeah. Now there is a part of the question that talks about the transition.

5:06And honestly, I think it's a pretty straightforward transition. It's, hey, whenever your current lease expires, or if they're already on a month to month, you give them their notice. And then you start to market the place for co-living. We've seen it done in different ways, right? But like oftentimes, you'll want to furnish some of the main living spaces. I know some folks do co-living where they'll also furnish the room. Others say, hey, you got to bring your own stuff. But oftentimes, the communal spaces are furnished. So maybe it's just a matter of getting the the furniture kind of set up in those, in those core places.

5:36And then you're basically just starting the screening process in the same way that you would, if it was a traditional long-term tenant. So I don't think there's a huge, massive jump you need to make. Now you do want to do the math, right? I mean, you said someone told you that you could get six to$700 per month, but I try and validate that. Are there, are there other rooms for rent in the area? And if so, what are they renting for? If you compare that to maybe a studio apartment or maybe a one bedroom apartment is, you know, our one bedroom is going for 400 bucks per month in your market. Well, then it's probably going to be a little hard to get a, you know, six or 700 bucks on a room rental.

6:08But if one bedroom apartments are going for 1200, well then yeah, 700 for a room seems pretty reasonable at that rate. Right. So I think just doing a little bit of research as well on the actual revenue potential will be important before you jump into actually converting this property into a co-living strategy. And there will also be more work up front. So yes, you are going to hopefully potentially make more money, but you are going to have to go out and find these tenants. So instead of just one tenant for the unit, you're going to have to go out and find one for each bedroom, which will take a significant amount of work instead of just having to place one tenant.

6:46You can outsource this to a leasing agent. I actually have never heard how they would charge on that. Typically a leasing agent charges one month's rent to rent out a unit and probably would be similar to renting out by the room, whatever that person is. So you're paying them one month's rent per each room that they rent out. But one other thing that I want to add on to the operational piece to actually think about too is the utilities. Are you going to cover all of the utilities? Will they split the utilities? Things like that. So easily transition, I would say, into it as far as the property.

7:27I don't see like you don't have to really do a rehab or anything like that, but it's more just getting these operational pieces in order. And some of them you might have to add in and figure out as you go. But there's so many people that are doing it that you go to the BiggerPockets forums and you just ask in there if someone could give you what their guidelines are, what their rules are, or, you know, a copy of their lease agreement and how they handle co -living situations. You'll get so many people that will actually, like, send you a list of, like, here's what I provide. Here's what they provide.

8:01Here's what I'm responsible for. Here's what they're responsible for. It can be really beneficial. Sean. There's also a pad split, which is an option for investors as well to kind of help source and list your co-living opportunities. And I've heard a lot of investors having some success with pad split as well. We're going to take a quick break, but when we come back, we're answering the question that is probably the most searched thing on our entire YouTube channel right now. It's how do you actually buy your first rental property when you don't have a lot of money? We'll be right back after this.

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11:12www.propstream.com slash BP. Okay. Welcome back. Our second question is from the Bear Pockets forums. I am 27 years old and I desperately want to buy my first rental property. The problem is I only have about$8 ,000 saved. Every time I look at a deal, the down payment alone is$20 ,000 to$40 ,000 and I feel like I am years away from being able to actually do this. My income is solid. I make$65 ,000 a year, but I cannot seem to save fast enough. Is there a way to actually get into real estate investing right now with only$8 ,000 or do I just need to keep saving and wait? I'm starting to feel like I'm going to miss the window.

11:55First of all, no window to be missed. You don't want to just jump into real estate for fear of missing out on the window and think that you need to buy something now. But on the flip side, the sooner you start, the more appreciation, the more equity that will build up over time in your properties. So there definitely is an advantage to starting now compared or do later, but don't rush into it because you think you're going to miss out on perfect timing of purchasing a deal. So the first recommendation I'm going to give is doing a house hack. It's a powerful way to own an investment property. Have some of your living expenses covered, if not all of them, and you can buy a two to four unit property, live in one unit.

12:41And I know, I don't think in this question we know where the person is living as far as, you know, how much they'd actually need for a down payment, you know, what their purchasing power is in their area. But with an FHA loan, if you're going to live in your primary and rent out the other units, that's three and a half percent down. Or we just talked about co-living, buying a property and maybe you live in one unit, your one bedroom, and then rent out the other bedrooms. So house Hacking is such a powerful way to actually get started. And then after a year, once you've satisfied the loan requirement of living in the property for a year, you can move out and rent out that area.

13:22And now you have a full investment property. I think one of my favorite loan products, and we've talked about this before, but it's the NACA loan. And we've interviewed folks who have used it before. Nancy Rodriguez, I know she used it. There's some other folks we brought in as well. But NACA is a nonprofit that's partnered with, I believe it's Bank of America, to offer what I think is potentially the best house hacking loan product that I've seen. But it's essentially 0 % down with zero closing costs. I think the only thing you might have to pay for, I think, is either your inspection or your appraisal.

13:58There's one minor thing you have to pay for. And the interest rate is typically about a point lower than whatever the prevailing interest rates are today. And like, I'm going to pull up the NACA website because you can go onto their website at any point in time and pull up the mortgage rates that they're offering. And if I look today, I'm just going to type in today's mortgage rates. And it looks like according at least to. All right. So as of today, at least as of this recording, the 30 year fixed is about 6.73 percent. On NACA's website, they're offering a 30 year fixed at 5.6 percent. Right.

14:35So they're an entire point lower right now than where prevailing interest rates are. And that's just how they operate. That's not like a promo. There's nothing special you need to do to get that. That is just simply the loan product that they offer. And you can use a NACA loan product up to four units. So you can buy, you know, small multifamily, live in one unit, rent out the others. There are definitely some restrictions that come along with that loan in terms of purchase price, in terms of your ability to move out. I want to say it's longer than a year. I want to say it's maybe two years. It might even be three years you have to live with the property before you can move out of it.

15:13And you can only have one NACA loan open at a time. So if you ever decide to try and use the NACA loan again, you'd have to sell that existing property. So there are some restrictions there. But if you want to talk about getting started in potentially the most cost-effective way possible, I think the NACA loan product is one of the best that I've seen. Next, we have Creative Financing. So there's multiple different ways to get creative with your financing. And one of them is seller financing, finding a property where the seller is willing to hold the mortgage on the property. So you're negotiating the terms of your financing with them and you're making payments directly to them.

15:50So you negotiate what your down payment is, you negotiate what your interest rate is, and you're actually just paying them and they're holding the mortgage on the property instead of having to go through a bank and need a large down payment amount. The next thing is if you decide that you don't want to live in the property, you don't want a house hack, the NAC alone won't work for you, the creative financing options, you can't find a seller who will do seller financing, then there's also the save faster method, I guess per se, is increasing your income. How can you increase your income to aggressively save more money each month?

16:31I'm not a budgeter. I can't stand budgeting. I did the Dave Ramsey way of paying off a debt, and I love a lot of things about Dave Ramsey, but I prefer to increase my income. And yes, if there are some expenses, you know you could easily cut, like go ahead. But I'm not saying live frugal on rice and beans like Dave Ramsey, see if there is any side hustles. With AI today, there are so many different ways to make money doing side hustles, you know, social media even. Is there a way that you could increase your income, you know, consulting or, you know, doing jobs on Upwork, things like that, and use that to aggressively save for the next year to increase the amount that you actually have for a down payment.

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21:18All right, guys, welcome back. Our last question today is covering one of my favorite topics that we've covered recently. And it's a strategy that's genuinely hard to believe until you understand how it actually works, right? So we'll get into our final question. But this one comes from the forums. It says, I've been hearing a lot about assisted living as a real estate strategy where you can make$8 ,000 to$12 ,000 per month on a standard single family home. I own a three-bedroom, two-bath home that I currently rent for$1 ,800 per month. Is it actually realistic to turn a home like this into an assisted living facility?

21:50What does it take to get started? Licensing, renovation, staffing, and is this something regular real estate investors can do, or do you need a healthcare background? What are the biggest risks. Man, we recently interviewed Hans Stone. So if you want to go back and listen to Hans's episode, it's Hans Stone. But he's based in Southern California, just outside of Los Angeles. So very high cost of living market. And he's been able to cash flow incredibly well with that. I think he has two or three residential assisted living facilities. And that episode is honestly a really well laid out kind of mini masterclass on how to get started in the residential assisted living facility space.

22:31But for folks that aren't aware, assisted living facilities are homes for typically elderly individuals who are unable or maybe no longer desire to live on their own. And they're looking for basically 24-7 support and care to help them continue to live with some level of independence, right? So these are homes where typically all of your meals are included. There's activities they're doing for the residents that are there. Obviously, your room, utilities, furnishings, all those things are included as well. So it's truly a place where the elderly can get the care that they need without having to go into like a traditional like, you know, call like an old folks home, right?

23:13A senior kind of place like that. Now, Hans's numbers were incredible. I don't recall the top of my head, but they were pretty close to like 12 to 14 grand per month, which is phenomenal cash flow, especially if you're doing this in a high cost of living market. But there are also some very important things to call it as well. There is a licensing process you have to go through in order to set up one of these residential assisted living facilities. There's a renovation process typically where you have to have certain elements in the home that abide by the rules of your specific state or county or whoever is a licensing body for where you live.

23:54So his strong recommendation was like, You need at least about 12 months of just like holding costs set aside when you close in this deal in addition to your renovation budget to make this type of asset work. So even if you already have the property itself, you'd still want to make sure that you set aside the funds to renovate it to meet whatever requirements your state or city or county needs, but then also have enough funds for the 12 months it'll take to convert it into an assisted living facility and to get it fully leased up. So it's not like an immediate spigot where you get a rental today and you can maybe have someone signing a lease tomorrow.