I have to preface all of this by saying that:
- I’m not an expert, and
- It is a cash-intensive business
But I got my start in a very humble, simple way: house hacking.
What is house hacking?
House hacking is a fancy-schmancy real estate investing term that basically means you buy a house for the intention of living in it for a bit and then either renting it out, fixing it up, or being a landlord while you’re living in the house.
Here are some of the best articles around the web that I could find about house hacking from people who are much better and savvier real estate investors than I.
- The House Hacking Guide – How to “Hack” Your Housing, Live For Free, & Start Investing in Real Estate [Coach Carson]
- 6 Different Ways to “Hack” Your Housing [Bigger Pockets]
- The Landlords Guide to Successful House Hacking [Landlord Studio]
- What is House Hacking? [Fortune Builders]
How I learned about house hacking
I was more of an accidental house hacker. OG L Bee and the Money Tree readers know I intended to buy a house for me and my then-fiance to live in. But we broke off our engagement shortly before the renovation was completed.
I had a 2,000 square foot house, a new mortgage, and a lot of financial goals. So, my brother was moving to Atlanta and he became my roommate/tenant, along with a third roommate who floated in from time to time. Rather than thinking of the house as a mistake, I began house hacking my way to real estate riches.
The mortgage on my first house was super low, like $800 per month. So, I charged my roommates $400 each. Even though the third room wasn’t always occupied, for many months out of the year, my mortgage was covered in its entirety.
To illustrate the power of house hacking with my own numbers, let’s imagine that $800 a month came my way every month out of the year. This would leave someone with an extra $9,600 annually.
If you straight banked that money, by the end of year three, you’d have close to $30k ($28,800) and — depending on housing prices in your area — could use that money as a downpayment on another investment property.
Why I think house hacking is often the best way to go about starting a real estate portfolio
Full disclosure: Back in the mid-2010’s I didn’t use my “house hack” money for another real estate investment. But I did use it to invest in myself. Because I became a landlord and had my mortgage covered, I was able to become my own boss very quickly and build my own business from the ground up.
Without having to worry about the mortgage payment, I had less stress and was able to invest more money back into growing the business.
There are powerful house hacking stories online if you know where to look.
Finally, I think house hacking is great because in today’s economy (read: with coronavirus, the student loan crisis, and cost of living inflation), owning property is out of reach for many, particularly those in pricier urban areas.
The house “hacking” approach enables individuals to buy a home and think more strategically about what they buy. Buying a home already means your money will go further because you are building equity in a primary residence, but hacking your home and renting to roommates is a great way to ensure that money goes even further.