House Hacking 101: Live Free and Turn Your Biggest Expense into a Profit Center (Greatest Hits)

22:57No, not everyone's on a 12-month lease. Everyone is on at least like an eight-month lease. I like to try to have the leases expire between April 1st and August 31st because that's when the easiest time to fill. So for example, the last guy signed on September 1st and he wanted like a nine-month lease. So I said, okay, I'll give you a nine-month lease. Just as long as it's between those dates, I'm okay with not a 12-month lease. Just because nobody wants to move around the holidays or something? Yeah, no one wants to move around the holidays. No one really moves when it's cold or in the winter.

23:29It just seems like there's a lot more, for lack of a better word, inventory of people looking for places in the summer. At the end of the semester, school's out, people are moving. Or beginning of the next semester, people are out and moving, getting jobs, moving jobs, whatever it is. Okay, so you're going into the upstairs of this place. You have two extra bedrooms to rent out on a per bedroom basis. And then you've got the three bedroom Airbnb unit downstairs. Exactly right. What are the numbers penciling out to be for this one? So this one I bought for$380 ,000. And this one, the mortgage payment is just over$2 ,100 for this one.

24:06And rent up top total is$1 ,550. So for the two rooms, I'm renting out a master bedroom for$900. and then just a regular no-frills type bedroom for$650. And I anticipate, I haven't actually started on the Airbnb yet. I'm still in the process of renovating. But I've got a friend in a similar area who has a studio apartment downstairs in her basement that she rents out. And she gets on average$2 ,000 a month. So I'm thinking very conservatively, considering I have a three-bed, one-bath with my own kitchen and everything, I'll get$2 ,000 a month. So that would be$3 ,550 over a$2 ,100 mortgage. and living for free.

24:44So that's$1 ,400 over the mortgage. Again, probably set aside$400 for reserves. So now you're looking at$1 ,000 in cash flow there. And what was your acquisition cost for this one? So the down payment plus closing costs for that one was$25 ,000. And I'm probably putting another$20 ,000 to$30 ,000 into that basement rehab and just some other minor things around it. So this one is about$50 ,000 to$55 ,000 all in. Okay. And so you're able to continually use these kind of like low down payment owner occupied options? Because I always thought it was like, hey, it's a first time homebuyer program. It's like, well, it's clearly not your first time.

25:21Nope, that's a myth. It's not a first time homebuyer program. They do have first time homebuyer programs where you can even get a lower down payment, like maybe even 1 % or 3%. But the 5 % down conventional is you can do that over and over again. The catch here is that it has to be on a single family residence. So the only way to get that low down payment of less than 5 % on a duplex, triplex, or quad is to use that FHA loan. And you can only have one FHA loan out at a time. So if your plan is to do this, the duplex, triplex strategy, what you're going to want to do is get a duplex, triplex, or quadplex that you can fix up so that you put down your 3.5%, you fix it up, and then you can have 25 % because of forced depreciation, which just means you are actually doing the improvements yourself rather than letting the market do it for you.

26:06and then you can refinance out with a 25 % loan and then use the FHA loan again. So it's a little bit more work, but if you really want to do the multifamily two to four unit, that would also, one way you could do it. Yeah, this has definitely got our gears spinning. In fact, this is kind of one of my, my wife's addicted to like the Redfin app, even though we're renting today, she's still like always scrolling through. She's still, oh, look at this place, look at this place. And one of the things that she shares with me more often than just a random house are the ones with a hacking ability. I think that's one of our beefs against real estate historically is like, it's not hackable.

26:43Like we've been able to hack so much other stuff in our lives from our jobs to travel. And it's like, this just seems like an unavoidable monthly expense. And you're saying, no, look, there is a very straightforward way to avoid it. And so the ones that she shares with me are the ones that have like this mother-in-law unit or have this like permitted off garage unit or something. and sadly where we are, the rent from that, you know, maybe covers your property taxes, but it's at least a way to eliminate your property taxes versus just taking it and paying that every month. So I'm definitely got my gears spinning.

27:17This is something that, you know, just touched on briefly on the show in the past. And this is like an Airbnb sublease strategy. I'm curious if you have any exposure or experience with this, where basically you approach it not as a real estate investor, but as an aspiring hospitality mogul in the world of Airbnb and saying, look, Mr. Landlord, I see you have this or Mrs. Landlord, I see you have this five, six bedroom place available for rent. I would like to rent that from you with the intention of turning around and putting that up on Airbnb. You ever try anything like that or know anybody who has?

27:55Yeah, I actually have done this. One of my friends has a condo in downtown Denver. It's a two-bed, two bath condo. That's perfect location. And he couldn't find someone to rent it out for the price he wanted. So I said, Okay, well, I'll rent it out for the price that you want. And the only caveat here is I'm going to put it on Airbnb, and I'm going to keep the difference. And so yeah, this was actually a huge side hustle type thing for me for about a year. I probably made 10 to 15 grand over the course of that year just on that, we call it Airbnb arbitrage, where it's exactly what you said were put on Airbnb, you pay your landlord the rent, and you keep the difference.

28:33And yeah, it was huge. It was actually a huge, huge helper in helping me pay down my student loans, which I had$86 ,000 of student loans when I started this journey. And I've paid them all off in just a couple of years. So yeah, this is a huge help there. What kind of time did you put into managing this? This sounds like fascinating to me because it's like, hey, 5 % down payment is great, but it's still 5 % down. Here is first and last month's rent and a security deposit, and you're off to the races. Yeah, this is much easier to get into for sure. The only problem is you're not really building wealth.

29:03You're creating a job for yourself because you're only getting the cash flow part of it. Unless you start building a massive portfolio of these and can sell them off to an Airbnb management company, you're not really creating value unless you're building a business out of it. So that's the downside to it. But yeah, if you're early on and you're just trying to save up for that first down payment, that would be a great way to go about doing it. And you're going to run into a lot of landlords that are going to say, no, they're not going to want to do this for you. or you just have to keep pushing and keep asking them.

29:30Is there a particular type of property? So you mentioned, hey, this is downtown Denver, perfect location. Is there a type of property you see working better for this than others? I would say it's definitely better in those vacation type properties. So people are visiting Denver all the time. So you know there's going to be interest in this place downtown. Yeah, steady demand. It's walkable. Sure. Exactly. Exactly. Walkable to bars, walkable to the ballpark, all that kind of stuff. If you're in a city, you kind of want something in the city. or if you're in Denver, we also have mountains. So if you have a house in the mountains or close to the mountains, also would be a great place.

30:01If you're on a beach, a beach house would be great. Stuff like that. Okay, and so the trick is finding one of these units available for a long-term lease and then selling the landlord on the idea that, look, I'm gonna guarantee your rent every month. It'll be the greatest tenant you ever had, but here's what I intend to do with the property and finding the person who says like, yeah, that's fine. If you're gonna pay me and maintain it, go to town. Yeah, exactly. And you tell the landlord, yeah, you won't have to worry about the little fixes, light bulb break or leaky sink or something like that.

30:31You'll take care of all the little stuff. And someone's going to be coming in and cleaning your place every three to four days. Typically, vacationers don't use the appliances that much. So your appliances won't be used as much. There are a lot of positives to it for the landlord. They just don't realize it. So you just have to really bring it to their attention. But for sure, as a landlord, I would let someone do that for sure. And I'd actually probably maybe ask for a little bit of the upside or I'd charge him a little bit more to do that. Sure. Because you're going to have more turnover, I'm going to charge a little bit of a premium on that rent or it's got to be rented furnished.

31:03Or were you in charge of furnishing it? We kind of split the furnishing. We ended up splitting that off basically because it wasn't allowed in the HOA and then the HOA caught us. So we just shut it down and he bought me out for the furniture that I bought. And now he has it as a full-time rental. So yeah, that's the thing with Airbnb. So many municipalities do not like it because it's really been disruptive for long-term rents and real estate prices and all for a lot of reasons. So yeah, definitely check with your city's local laws because not only what they have in place now, but it's subject to change at any time.

31:35So it's got to pencil out as a long-term, you gotta have a backup plan, I guess, is where I'm going with that. Oh, for sure. Yeah, definitely do not have it. So Airbnb is the only way that your property works. You will end up underwater for sure. You have to have it work in multiple ways. And what were you putting in terms of time dealing with coordinating cleaners and all the other stuff that comes with messaging guests and handling check-ins and stuff? There's software out there that does all that. So we had just an automatic keypad. There's a software out there that's called SmartVMD where you set up automatic messages.

32:05And so every time there's a booking, it says, thank you for booking. 24 hours before check-in, it sends them all the check-in instructions. And if they have questions, sometimes it can actually detect the questions they ask and send the response back. So there's software out there for all that. My cleaning lady was just, she was on my calendar, so she could just see when guests were checking in and out. That's when she would come in and out. Yeah, it was pretty automated. The only time I would really do anything was if there was something wrong at the place, something was broken, or if the one-off question wouldn't get caught by the automatic response, and I'd have to go in and send a text to the person.

32:40Yeah, and thinking about all the Airbnbs that I've rented, I've had to message the host just a handful of times. One was like, is there a heater in this place? It's freezing in here. He was like, yeah, there should be in the closet. Like, nope, there's nothing. And by the time I went to dinner and came back, he, you know, I found somebody to drop off a heater. So yeah, probably not the world's most intensive, especially if you're kind of automating the check-in, check-out and have a reliable cleaning service to go and do that. I think that's a really interesting side hustle. Like you said, 10, 15 grand on the side before the condo homeowners association said not anymore.

33:13Yeah, we were both so mad when they got us. but we knew it wasn't a matter of if, it was a matter of when, so. Interesting, that makes me kind of want to check the HOA rules where we are. They probably don't allow it, but just I'm not encouraging anything, so. Right, check your local laws for sure and your homeowners association rules. How about for somebody who, like myself, like we're married, we've got a couple kids, there's the option of buying a place with that mother-in-law unit, you know, in the backyard or like the tiny house type of thing in the backyard, anything else you've seen work For families who are like, yeah, I really don't want to live with my wife and two kids behind a curtain in the living room.

33:51For sure, we call that the luxurious house hack where you live in the big house and you just rent out the additional dwelling unit or whatever. And that works and it's perfect. You probably will not get the same type of cash flow that you would on an other type of house hack. But typically, you're going to sacrifice comfortability with profitability. So the more comfortable you are, the less profit you're going to get. and with a family, unfortunately, you probably want to be a little bit more comfortable than if you were just single or whatever. You will 100 % be better than if you did not have someone back there.

34:23But you may not totally cover your mortgage. It may only be by like$1 ,000 or$1 ,500 on a$2 ,000 mortgage. Another strategy that you could use too would be the duplex, triplex or quadplex. So then at least you have a whole place to yourself and then you're likely still sharing a wall with your tenant. And as long as you're okay with that, I suspect most people want to live in a detached single family home. as they get older. But if you're just starting out, it may not be a bad idea just to do that for a year before you can, which will lever you up into that single family dream home that you wanted.

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36:41There's no need to wait any longer. Speed up your hiring right now with Indeed. Side Hustle Show listeners get a$75 sponsored job credit to get your jobs more visibility at Indeed.com slash Side Hustle Show. Just go to Indeed.com slash Side Hustle Show right now and support the show by saying you heard about Indeed on this podcast. Indeed.com slash Side Hustle Show. Terms and conditions apply. Hiring. Indeed is all you need. Yeah, some people have kind of expressed concerns about like, oh, if I have, you know, even just to rent out a bedroom in your house, whether it's Airbnb or whether it's a long-term tenant, I guess if it's a long-term tenant, that's less of an issue.

37:20But if it's Airbnb, like what are these, you know, rotating cast of characters that are coming through my house? I'm almost, especially as the kids get a little bit older than they are now and they sleep through the night, it would be hard to sell. Like, hey, you want to come sleep with us? They might wake up in the middle of the night. You kind of are exposing since such so much of Airbnb is international. like you're exposing them to like it's almost like the exchange student thing where it's like hey come stay with us for the summer i think that would be actually a really interesting way to introduce kids to people from all over the world and and hopefully not have the experience that you have one one of your guests yeah and again that that one experience i mean i've had hundreds of guests and one bad experience and that was on the one guy who got comfortable with me everyone else has been super nice super friendly i've stayed at a lot of airbnbs too where where I've got a bedroom and there's a family, right?

38:10There are kids running around and you just end up kind of hanging out. I often just hang out with them and the kids and you're kind of just part of family for a couple of days and they kind of welcome you in. They know anyone who puts a room up on Airbnb isn't going to be surprised when you come into their house because they know they put the room up on Airbnb and they know you're going to be around their kids. So they've already thought of that and they've already felt comfortable with that. Airbnb does their checks and all that kind of stuff. And if someone looks sketchy, you can decline them, whatever.

38:35But ultimately, you'd be surprised as to how many people don't mind if there's kids running around or not. Yeah, this is really interesting stuff. I love Livermore, love living here, love the Bay Area. But that's our biggest beef. Man, it's not cheap. And if there was a way, if only there was a way, if only someone had written the book on house hacking, maybe we could neutralize this expense or at least reduce this expense. So, Craig, really appreciate you joining me. You mentioned you had a couple other acquisitions in the works. Is this the game plan? to continue to build your empire? To be honest, I don't really like to think too far out because I just think life changes really quickly.

39:12My goal here is to be as flexible as possible. So when life throws me something, I can hit it out of the park. And for now, I'm going to probably get at least one more house hack after this one. And I'd like to probably travel for a little bit. I think now I'm officially financially independent. So I'm going to take advantage of that while I am still young and take some time and go travel in probably about 18 months or so. Yeah, and then come back and probably start building the empire a little bit more. I definitely am getting... I've got a little bit more capital and stuff on hand. I'll probably get into some burying and just some other types of real estate investing because I just think that's really fascinating.

39:47But eventually, at the end of the day, is I want to have my life back and I don't want to have a full job. So when the time comes, I'd like to probably sell them on real estate and put them in index funds and just kick back and relax for a little while. So who knows? Just whatever life brings at me, I want to be able to take. Well, that's really cool. Appreciate you sharing that. And I'm really impressed with the foundation, the financial foundation that you built for yourself at a pretty young age. So again, check out the book. It is The House Hacking Strategy. Again, the book that I wish I had read upon graduation.

40:18I definitely would have made some different moves in those intermediate years, in those intervening years. Biggerpockets.com slash househack. If you want to grab a copy today, it is really well done, really eye-opening stuff. Craig, let's wrap this thing up with your number one tip for Side Hustle Nation. I would just say, don't be afraid to get started and take that first step and just take action rather than computing, computing, computing, running numbers, just go do it. And if it doesn't work, stop. You can always stop, you can always adjust. We're human, you can always adjust. So I would say just take action and keep doing a lot of what works and stop doing what doesn't.

40:56Absolutely. Craig, appreciate you joining me and we'll catch up with you soon.

41:04The math nerd in me loved Craig's approach of erasing his housing expense. This is something Brent and I seriously talk about all the time since it's such a big line item expense in our personal budget. All right, my top three takeaways from this call with Craig. Number one is to avoid that lifestyle creep as long as you can. Live like a college student as long as you can because it's hard to go back the other direction. Craig calls this hedonic adaptation. I'm not sure if I'm pronouncing that right. But the basic idea is that a luxury once experienced becomes a necessity. So if you're serious about financial independence, a really important part of the game is postponing those luxuries.

41:45This is something we've been talking about in our house a lot lately. Just because you can afford something doesn't necessarily make it a good idea. It doesn't necessarily mean that's going to make you any happier in the long run. If you consider that your savings rate is the single most important variable in your financial independence equation, that is, out of every dollar you earn, how much do you get to keep after all your expenses? That might make it easier to keep that lifestyle creep in check. Every time your income increases, you can look at it as a way of becoming more profitable as a household, not necessarily has permission to increase your lifestyle and expenditure to new heights, living up to those means.

42:26So we go back and forth on that a lot. And the counterpoint, of course, is lifestyle creep is kind of the point, right? Like, what's the point of making money if you can't enjoy it? There's a Tim Ferriss line that goes something like this. How can I, quote, waste money to improve my life? That's the whole point. But my takeaway from this chat with Craig is if you postpone or defer that lifestyle creep as long as you can, maybe even until you've already achieved some level of financial independence, you'll hit your goals much, much faster. At least be conscious of it. So that's takeaway number one for me.

43:00Takeaway number two is to consider all the options. I know Craig just said not to overanalyze this stuff, but I get the sense he didn't go into any of these deals without knowing the numbers. So use those to compare your different options and get creative. When I graduated, I was in a rush to be grown up, to get a place all on my own. And I was super focused on one option. And that option was finding a one bedroom apartment. This was in Reston, Virginia, outside of DC. I had the blinders on to anything else. So if nothing else, I hope Craig has opened your eyes to some alternatives. And then you can do your own calculations as to what makes sense for you.

43:36That's takeaway number two to consider all the options. And takeaway number three is to look for some low risk ways to test this out, to start small, essentially. Some friends of ours have rented out a bedroom in their house for years to interns coming through town, to co-workers, and that doesn't cover their entire mortgage, but it is an extra$500 to$1 ,000 a month to offset their living costs from a room they already had. And if you decide you don't like it or it's not worth it, you can stop. I don't think we talked about this on air, but it was Ben Foley from episode 232 who told me about Airbnb-ing his living room for a while.

44:13He's like, yeah, it was crowded. Yeah, it was uncomfortable sometimes, but it added up to some significant cash. Another listener, Michael, wrote me with an even more extreme example than Craig living behind a curtain. He would rent out his entire apartment on Airbnb, which left him living out of his car, his Ford Escape. And I don't think that it's awesome that anyone would do that out of necessity. But if you can stomach that discomfort, again, doing the things that other people won't, you can set yourself up pretty nicely. In this case, Michael ultimately earned 150 grand, which totally erased his student debt and cut years off his working career if he wants to go that path.

44:51He gave me this quote, quote, everyone wants the convenience of financial freedom, but only a few go through the inconvenience of achieving it, end quote. That's takeaway number three for me. Start small, look for some low-risk ways to test this out. See if you like it, see if it ends up being worthwhile for you. Once again, notes and links for this episode, along with all of Craig's top tips from the call are at sidehustlenation.com slash Craig, C-R-A-I-G. That's it for me. Thank you so much for tuning in. Until next time, let's go out there and make something happen. And I'll catch you in the next edition of the Side Hustle Show.

45:25Hustle on.

45:39Thank you.