How to House Hack Your Way Out of $200K in Student Loan Debt!

0:00Ashley Kehr:Today's guest was climbing the corporate ladder, had a stable job and good income. But when he sat down with his partner at their kitchen table and they actually ran the math on what their next 30 years looked like, they didn't really like the answer. He was 31, she was 24, and quietly running the numbers on a retirement plan they didn't believe in. Then she looked up at the empty space above their garage and designed the deal that broke the house.

0:29Ashley Kehr:This is the Real Estate Rookie Podcast. I'm Ashley Kerr. And I'm Tony J. Robinson. And with that, let's give a big warm welcome to James. James, thank you for joining us on the Real Estate Rookie Podcast today. Thanks for having me, Ashley and Tony. Appreciate it. So James, let's start with that moment at your kitchen table. So is this something you guys would usually do is sit down and kind of put together a financial game plan, look at the future plan? Or was this the first time that you had done that? No, yeah, that's something we pretty regularly did. We'd sit down and have money dates and talk about our finances and our future and how to get set up and get to where we want to be.

1:06Jim, let me ask just really quickly, because I love the idea of the money dates. For rookies that are listening that want to replicate that, just give us the quick agenda. Like how often and what were you guys talking about in those meetings? Clearly, it had a big impact on your financial future. Yeah, we've actually kept it up for years now at this point. Once a week, an hour out of the week, usually before we start our actual date night. That way we're not too tired. We got all the stuff that we had sitting on our shelves brewing and our minds off our plate and we're able to enjoy our time together.

1:39But we sit down, we review what we spent, what we plan on spending, where we are compared to the budget that we set, any adjustments that need to be made. And since we're doing it so frequently, week to week, there's not really any room for things to get too off the rails.

1:56Ashley Kehr:Now, James, when this point in your life, when you're looking down and not liking what you see for the future, where were your financials at at this point? Did you own a home? Did you have any debt? Things like that. So I just accepted a new job that moved us out to Pennsylvania. We didn't know the area at all. So we were renting a house while we figured out exactly where we wanted to live. We were making pretty good money on paper. I was a director for a health care company. She was a data scientist for an insurance company. Household income about$300K. The reality of that was we also had$200K in student loans, two car payments.

2:36we're saving less than 10 % of our income. So that's kind of where we were. I was 31. She was 24 at the time. And we realized, you know, sitting down at that money date at the kitchen table, hey, this is going to be 30 or 40 years of this grind. And neither of us were really willing to wait that long to dedicate more time together. I think there are a lot of people, James, who maybe have that same realization, though, where they sit down and they're like, man, the path that we're on is not going to actually get us to the end result that we want. And they wait months, sometimes years before they actually take action.

3:15What was the first thing that you guys did that wasn't reading another book or listening to another podcast? What was the first thing you did in the real world that gave you some forward momentum towards changing that trajectory? Sure. Yeah. I liked how you mentioned not reading another book, not listening to other podcasts because we've done all of that at that point i think we had spreadsheets coming out of our ears so um the first thing that we did was call a local real estate office um we called to connect with an agent we said hey look we're throwing all this money away renting we know that we should own a home we want to treat it like an investment not just a nice place for us to live it's something that will aid our financial goals um and i had the idea of house hacking so we said all right let me call local office get the the best investor-friendly agent that they have to hook us up and teach us, to show us all the exciting things.

4:06So that was the very first step that we took and started going on some tours with him to look at things that we thought fit our model. What did that conversation with the realtor maybe teach you that not listening to another podcast or another book could have taught you? That first real-world taste of being a real estate investor, what was different than the books and the podcast. Yeah, I think it was a blessing in disguise that he actually wasn't the right agent for us. He kept talking us out of every opportunity that we looked at, everything that we came across. And the thing that gave us the confidence that we weren't going to get from books or podcasts or anything was realizing that independently, even though this expert was telling us that it didn't fit our vision or it wasn't a good deal or it wasn't a good idea, we independently felt differently and we saw the opportunity in it.

5:02Okay, we can make this work. And when we coordinated together after doing that showing, we realized, you know what, we don't necessarily need everybody to align with our vision. We believe in this. So we're going to go for it.

5:16Ashley Kehr:So take us through some of those deals that you looked at. Did you make offers on any before you ended up on the one that you actually purchased? We didn't actually, no. We only offered on the first one that we uh purchased we did walk through a lot of different houses though he was taking us all over town there was a lot of traditional duplexes that were built for for the purpose of you know two two families um uh three family homes even there was a lot of homes that were in a multi-family zoning but were single family homes so um they were listed at a little bit of a cheaper price, needed a little bit more work, had the opportunity there, but not the actual structure.

5:59So it really required some imagination and thinking outside of the box, I think, to see those come to life. So eventually we landed on one that was in that latter group of being zoned properly, but was really just a single family house. And we saw the opportunity to do what we did there.

6:18Ashley Kehr:And now with this property, that opportunity was this garage space then? Yes, exactly. So there was a main house, about a 2 ,500 square foot, four bed, three bath house. There was a detached garage, two car garage, oversized, really, really quite large and a empty but somewhat built out livable area above the garage there. so that that's how we we saw that that vision and Ida was on it right away she's like we can live in that little apartment we can make it nice we'll rent out the main house I was a little bit more well I've been working my butt off I'm you know over 30 years old I'd like to live in the nice part of the house and maybe we rent out the smaller one and you know we'll we'll collect less profit.

7:10But she wrote the math down on paper, showed it to me, and was like, this gets us to our goal. This doesn't. Which one do we want to do? So we removed the emotion from the decision. I removed the emotion from the decision. We went with what made sense on paper.

7:27Ashley Kehr:But James, in a way, that is still taking your own personal preference into consideration. Just because you're giving up what you want now, you're giving that up so you can get what you want in the future. And so it's not really, you know, sacrificing something or it's not like giving up. Like you are actually just changing something now so that you can have what you want later. and part of the motivation of real estate investing if you want it really bad sometimes that motivation to get to what you want is going to make you do things like this where okay i'm going to live in you know the adu and not live in the main house i 100 would do that i would see that vision too i'm with ida is to like let's make as much as we can as fast as we can renting out the bigger house and we'll just live in this you know smaller apartment but i i think that can get lost with people.

8:28Ashley Kehr:And I love that she sat down with you and kind of wrote it out. I think so many people are visual learners and need to actually like see it rather than been told it. And I think that was just a great example right there. Yeah, absolutely. I mean, she has an amazing story and background, and I think it's allowed her to really be comfortable with this concept of delayed gratification and me having a very different background. I had to learn that some some hurt over time and it's been it's been a wonderful day and just for rick is in case we didn't clarify ida is james's wife uh who's been his partner throughout all these deals i know we thrown that name around a bit but uh james most rookies i think stall on real estate not because they don't see the path not because they don't have the the vision but they saw because they can't necessarily agree on the risk associated with investing in real estate and you kind of talked to us a little bit about like the mathematical approach that you guys took But in those early days between you and your wife, who was maybe like the brakes and who was the gas pedal?

9:32And how did the two of you actually align on what you were willing to put at stake in order to actually get things started? Yeah, that's a great question. I mean, especially when it's not just a business partnership, it's a marriage. There's a delicate balance to be held up, to be upheld there. I was probably more of the gas and Ida was the brake. she was rooted heavily in math I think just from a background and a you know natural personality type of thing and I was I was a little bit more of the the one willing to execute so you know we have an idea together and it's like all right let's go I see all the steps to get there so I'd get excited I started running scenarios where it could work and she just you know kind of pull the spreadsheet towards her and make us look at the math again, make sure that nothing was optimistic, make sure that we didn't need best case scenario for several components of the deal for anything to work, to really rein the whole operation in and kind of force everything to be based on math and not emotions, like I said before, that very first deal.

10:40Ashley Kehr:Well, we're going to take a short break, but when we come back, we're going to get into what actually made this deal work. So we'll be right back. When you buy your first rental property, there's usually a moment right before you pull the trigger where your brain starts spiraling a little. What if I'm making a mistake? What if I can't figure this out? What if this whole thing becomes way more complicated than I expected? Honestly, building any business feels like that at first. And for a lot of investors, that next step is creating a brand, a website, or even a business around what they're building.

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15:06Ashley Kehr:The thing they were missing was the actual deal itself until they find that this property with the empty space above their garage, and they actually started doing math very differently. Okay. So James, let's break down the numbers on this actual property. So walk us through what did the ADU actually cost you and how much did you put into the renovation on this property and how long did it take? Yeah. So it took about six months and to end all in the ADU came out at about$57 ,000. So six months from when we started to when we actually moved into the ADU was that timeline. We financed it with a 50K loan from a private lender that we built a relationship with.

16:01We put the rest of our own cash and we were able to refinance at a much higher value after that AD was built and completed. Two things, James, that stand out to me from your story are the timeframe, but then also the money that you borrowed from a private money lender. So let's talk about the private money piece first. I feel like that's probably the part that a lot of rookie investors want to know more about is like, how did you do that? So who was this individual and how did you approach them with the opportunity to invest in the ADU with you? Yeah, great question. I mean, I think pretty similar to a lot of investors early on that the story is the same.

16:47It was a family friend, essentially, that had the money, wanted to do something with it, wanted to help us out, understood that we were reliable and trustworthy because they had known us for a while. So that's how that came about initially. Yeah. But James, how did you actually broach that conversation with them? Did they know that you guys had already been searching and were interested in real estate? Was it just a cold outreach because maybe you knew they had some capital sitting around? What did that conversation actually look like to get you to the point where they actually ended up funding a good portion of that deal for you?

17:28Gotcha. Yeah. We're both pretty direct people. So they were aware that we were looking for a house. We were very close and spoke regularly in our lives. So it wasn't a surprise that we were looking for a house. It was a surprise when we had this idea of a house hack and burr and we threw all these terms around and kind of pitched them the deal. They were honestly very skeptical at first. A lot of questions around, well, how do you know how much it's going to be worth afterwards? How do you know what you're going to be able to get a loan for? And how can you guarantee that I'm going to get the money back, let alone, you know, additional interest?

18:06And so we we anticipate a lot of those questions. We showed the math. We really broke it down step by step of what we did to arrive at those numbers. Here's how here's how it works. Here's why this works. Here's other examples of people doing that. I have a close friend that's also in the LSD and I had him kind of explain and be a case study for how he's done that several times. So all of those things helped and were part of that initial conversation with them.

18:36Ashley Kehr:During the rehab process, did you hire out all of the work or did you guys do any of the work yourself? We made the mistake of doing a lot of the work ourselves. And I say the mistake because it took much longer and probably cost us more in holding costs, which we weren't super, I guess, aware of on our very first deal than it would have to just pay a contractor to do it. It was a great experience. We learned a lot about construction in general. But, yeah, we had a mix. So a lot of the large foundational components, say, along with plumbing and electric. we had contractors for. My father was a carpenter for many years, so he helped us install the kitchen and do a bunch of other things.

19:26Kind of a mix.

19:28Ashley Kehr:Okay. So James, once you've finished the rehab, you guys move in to the ADU property. And did you refinance this right away and kind of give us like wrap it all together here yeah we did it was um end of 2021 when we um went under contract early 2022 when we closed on the deal or yeah early 2022 when we started the the construction we refinanced right away um and uh rented out we actually lived in the we lived in the living room of the main house while the adu was being built um slept on an air mattress on the floor we're getting dressed out of our clothes being in in garbage bags and it was a nightmare we did that for a couple of months until the adu was livable but not finished and then we um moved kind of into there um and finished building it and then refinanced right way.

20:29And as soon as we moved into the ADU, we also rented out the main house. So that one was ready to go. We started collecting some income even before the ADU was built. That helped a lot. And we finished it while we were living through the renovations there.

20:44Ashley Kehr:What was the amount of the rent that you were able to charge? So we charged$2 ,750 for the main house. The mortgage was about$2 ,650. So we're netting about a hundred and, uh, you know, living, living for free. I mean, that is the goal. You know, that was like a, that's like a perfect house hack is someone's paying you, uh, to live in the place that you already want to live in. And then what about the refinance on the, on the backend? So what, what was the, the total all in cost of your, your purchase price and your, your, uh, rehab of the ADU? And then what was the, the, the final appraised value?

21:17you yeah so uh we were the the house was 445 uh we put about 60k i think 57k into the adu as i said so um took us a little bit over 500k all in um plus the holding cost took us to about 515 um and it appraised for way more than than we anticipated about 675 so um here's a it was a home run right off the bat. We had a bunch of equity in there. Rates were great at that time, so we had a pretty good deal going.

21:51Ashley Kehr:You got to tell us what was the rate. It was 3.4. Wow. Yeah. James, but did you guys do anything to the main house or was all of the renovation budget just on the ADU? The main house was in almost trachy condition. We hardly done anything. There There was a few minor cosmetic things. We had to paint one of the rooms. We had to fix part of the ceiling and clean. That's about it. I mean, so you said you bought it for$445 ,000 and then it appraised for$675 ,000. So we're talking over$200 ,000 in equity gain just because of the 60 some odd grand you spent on the ADU. Yeah, adding a whole other family to be able to live in that place.

22:33And now we rent that out for$2 ,000 a month. So that's$2 ,000 additional on top of the main house covering the mortgage. So now that you've moved out, you're collecting, what, almost$5 ,000 a month in rents, and your mortgage is still$26 ,000. I mean, what are you clearing after all expenses? Like$2 ,000 a month, basically, on this deal? Almost, yeah. That's a great first deal. You got to thank Ida a little bit more, James, for having that vision, man. Every day I do because I really started to snowball and we never would have gotten there without her.

23:07Ashley Kehr:Now, James, what about the next deal and your deals going forward? So you've got this great first deal. And I know that you've said that you would rather miss out on 10 deals than force one deal. So what does the future look like after you got this home run deal and now you've moved out of the property? What's next? Yeah, so we actually stayed there for as long as we could to keep saving money, living for free. We used that opportunity to pay down all of our debt. We eliminated 200K of student loans in a year and a half. Congratulations. Yeah, thanks. We reduced our car, paid off our cars. We just focused on getting rid of our debt and not really doing another deal right away.

23:55We wanted to be in a better financial position and be able to approach the future deals from a position of power. So that was our number one goal. Our number two goal after that was, hey, we learned a lot about construction, about managing contractors, about holding costs, for example. So we felt like we had the experience and the education to keep moving forward. So we looked through. So our next deals came from a mix of areas. Not the same agent, but a different investor-friendly agent who passed us a couple of off-market deals. Zillow, we pulled our last two deals just straight off of Zillow.

24:40They were on the MLS. And one of them came from one of our tenants. So kind of a weird mix of sources. Yeah, James. So for the agents who are sending you off-market deals, I mean, that's the goal for a lot of rookies. They just have agents sending them deals that no one else has access to, right? That's like the holy grail of deal finding. How did you build those relationships? Or maybe better yet, why did those agents come to you as one of the people on their short list of properties to show these off-market opportunities? Yeah, that's a great question. I think the biggest thing is communication.