Real estate is the greatest creator of wealth in America. Many people believe that it is too expensive to get into real estate investing, so I want to let you know about a way to get into real estate without breaking the bank. I believe that the easiest way to get into real estate investing and creating passive cash is through house hacking.
House hacking is when you live in your property and rent out other rooms in your home or when you own a multi-family (duplex/triplex/4-plex) live in one unit and rent out the other units. When you rent out the other rooms or units you will generate cash flow that allows you to live for free or close to free.
The power of house hacking is that it allows you to cut down your living expenses from 30%-40% of your income to 10%-15% of your income. This decrease in expenses will make it much easier to reach your financial goals.
Whether you are looking to pay down debt, save more money, invest in assets you will have much more money to work with to go towards your goals.
Now you might be thinking “Beez, why would I want to live with other people? I want to buy my dream home not buy a home and share it with other people.”
Your first home isn’t a “forever home”
I hate to be the one to break it to you , but the likelihood that you will stay in the first home that you buy for the rest of your life is very low. On average most Americans spend 13 years in their home and most Americans own 3 homes throughout the duration of their lives.
Treating your first property as an investment instead of a primary home is a game changer. You can live in the home that you are house hacking for 1-3 years then move on to buy the home that you really want. When you move into your next home you will generate even more income and cash flow enough money to pay for a portion of the mortgage of the new home that you purchased.
My house hacking experience
I house hacked my townhouse for almost two years before going overseas. I purchased a 3 bedroom 3.5 bathroom townhome and rented out 2 of the 3 rooms. One room rented for $650 and the second room rented for $700 a month for a total of $1350 a month. These two rooms paid for almost 60% of my mortgage.
It was very easy to live with other people because I knew it was only temporary. After I moved overseas I rented the property out to a family for more than what my mortgage was. Five years later I am still renting the property and have a cash flowing asset that is being paid for by my tenants.
Market Research
Market research is extremely important when deciding where to purchase your investment property and how much you will be able to rent out rooms or entire units. For determining how much you can rent out entire properties, I suggest that you use rentometer.com and make sure you compare the same specs.
So, if you are planning to rent out a duplex that has 2 bedrooms/2 baths look at the rent of other 2 bedroom 2 bathroom homes to determine what market rent is. Also, check Zillow.com for the rent of homes in your area.
If you are looking to rent out rooms in your area, roomster.com is a good place to learn how much people are willing to pay to rent out rooms and it is also a good place to list your rooms for rent to find tenants. I used Roomster to find my tenants and they were great to live with, I had zero issues.
Property Management
Some people may not want to manage their own property, if that is you, I suggest that you hire a property manager. A property manager is someone who will make sure that your tenants are taken care of at all times.
Collecting rent, handling maintenance requests, finding new tenants, lease signings, and going through the eviction process is the property manager's job. Typically, property managers charge 8-10% of the total rent of the property as their management fee. Small cost to pay to not have to worry about tenants.
Saving for Future Expenses
Make sure that you are putting away money to pay for future maintenance expenses. The expenses that go into maintaining a property is called capital expenditure (CapEx). CapEx are the high-ticket items that need to be replaced over time in a home.
For single family homes, you should put between $180-$200 per month away for CapEx, so you aren’t caught off guard when an item needs to be replaced. Below is a chart of the 13 main items that need to be replaced in a house over time.
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You should put this money away with your primary home as well. When it comes to owning a home unless it is a new construction home expect there to be repairs and monthly maintenance expenses. You can’t call the maintenance man to come to take care of issues for free when you are a property owner.
Home buying and House Hacking Resources
If you are interested in learning more about the home buying process, securing a home loan, what credit score you need, how much money you need to put down, and home buying grants check out my best selling book called Financial Starter Kit.
If you are interested in getting more information about House Hacking and spreadsheets to run the right numbers on a house hack, use my link to check out my friends Brian’s House Hacking Course.
Hopefully, this email was helpful for people who are looking to get into real estate, create passive income, and live for free.
"Reverse engineer your life. Live a life of abundance."
-Beez
I am hosting #FinanceFridays Instagram Live videos every Friday from 3-4 PM Eastern where I will discussing everything money related on my Instagram @capital.sb .
