SS226: Building Wealth Through House Hacking

SS226: Building Wealth Through House Hacking

House hacking is a strategic hybrid housing and investing approach. In this episode, Charles discusses how house hackers can reduce their living expenses, launch their rental business and build wealth, all at the same time.

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Talking Points:

  • House hacking is a very powerful investment strategy. I started my multifamily investing career by purchasing a 3-family house, living in one unit, and renting out the other two. Traditional house hacking involves purchasing a 2–4-unit multifamily property, living in one unit, and renting out the others. Why only 4 units? With 5-plus-unit properties, the property is now considered a commercial property and will not allow you to purchase it with a residential mortgage.
  • A couple of different house hacking methods include the rent by the room model, which I avoided since I didn’t want to live with strangers, and the accessory dwelling unit or ADU model, where you might have an additional legal unit or mother-in-law unit on your property that you can easily rent to someone and most likely will get a higher rental rate because they will have their private entrance and will have more privacy than other multifamily setups.
  • If you want to learn more about housing hacking and how to house hack a property, please check out episodes SS41 and SS159.
  • How does someone build wealth when they are house-hacking?
    • 1. Reducing Your Living Expenses. You see online or on social media about house hackers who lived for free, but in my 5 years of house hacking, I never lived for free. Significantly discounted living expenses, yes, but I think on my best month house hacking, when I was renting out a room to a friend, it cost me like $40 a month to live there. I still always paid myself some monthly rent to build up my property’s bank account as a reserve, but when house hacking, the money you are saving can be considered the management fee you are paying yourself.
    • 2. Building Equity. I remember paying off $350-$450 monthly of principal when I was house-hacking as I paid my mortgage, or better yet, as my tenants paid the mortgage.
    • 3. Property Appreciation. Most properties will appreciate over a 10-year period. I owned my first house hack property for 16 years before selling it.
    • 4. Tax Benefits. I would never buy a property because of the tax benefits, but property ownership does come with several tax deductions. Some of these include mortgage interest deductions and maintenance expenses. Remember that this is your primary residence, so at $250k-$500k, your capital gains when you sell will be sheltered.
  • When I was house-hacking, I knew I wanted to become a property investor and landlord on a larger scale, so the main benefit of house-hacking was learning how to become a landlord on a very small and safe scale. There are only so many issues you can have with repairs and tenants when there are only 3 or 4 units. Additionally, you live at the property, which makes self-managing the property very easy. You do not have to travel anywhere if there is an issue. It taught me a lot about dealing with tenants and contractors and managing properties with minimal risk. No matter what your long-term goals are around real estate and investing, house-hacking will jump-start your net worth while allowing you to gain valuable property owner experience.

Transcript:

Charles:
What if I told you that you could live for almost free build wealth and have tenants pay your mortgage, but there’s one mistake that 99% of house hackers make and it could derail your entire strategy. Today I’m gonna show you exactly how house hacking can change your financial future, but more importantly, how to avoid the mistakes most people make. Welcome the strategy Saturday. I’m Charles Carillo, and today we’re diving into the life-changing strategy of house hacking and I’m gonna show you exactly how you can start building wealth just like I did. By the way, are you already house hacking or are you considering it? Drop a come below and let me know. I want to hear what’s holding you back or what’s been working for you. So house hacking’s a very powerful investment strategy. I started my multifamily investing career, but purchasing a three family house, living in one of the units and renting out the other two.

Charles:
Now, traditional house hacking involves purchasing a two to four unit property, living in one of the units and renting out the others. And why Only four units? ’cause With five plus unit properties, the property is now considered a commercial property and it will not allow you to purchase it with a residential mortgage. And residential mortgages are good for this because it’s gonna be a lower down payment. Now, a couple of different house hacking methods include the rent by room model, which I avoidance since I didn’t wanna live with strangers. And the accessory dwelling unit or a BU model where you might have an additional legal unit or mother-in-law unit on the property that you can easily rent to someone and you’ll most likely get a higher rental rate because they’re gonna have their own private entrance. Okay, now if you wanna learn more about house hacking and how to house hack a property, you can please check out episodes SS four one and SS 1 15 9.

Charles:
So how does someone build wealth when they’re house hacking? So number one is reducing your living expenses. Now, you’ll probably see online or on social media that house hackers who live for free. But in my five years of house hacking, I never live for free. Now significantly discounted living expenses, yes, but I think on my best month as the house hacking, when I was renting out a room as well in my unit to a friend it cost me like $40 a month to live, which is really low, but still I wasn’t making any money. Now I still always paid myself some monthly rent to build up my property’s bank account as a reserve. But when house hacking, the money you are saving can be considered the management fee that you’re paying yourself. Now number two is building equity. Now I remember paying off three 50 to four 50 monthly of principle when I was house hacking as I paid my mortgage or, but yet as my tenants paid the mortgage.

Charles:
Number three is property appreciation. Now, most properties will appreciate over a 10 year period and I own my first house hack for 16 years before selling it. So definitely appreciate it before I sold it. Number four are the tax benefits. Now, I would never buy a property because of the tax benefits, but property ownership does come with several tax deductions. Some of these include mortgage insurance, deductions and maintenance expenses. Remember that this is your primary residence, so 250 to $500,000 of your capital gains when you sell will be sheltered. Now, when I was house hacking, I knew I wanted to become a property investor and the landlord on a larger scale. So the main benefit of house hacking was learning how to become a landlord on a very small and safe scale, minimal risk. Now, there are only so many issues you have with repairs and tenants when there are only three or four units that are your managing.

Charles:
Additionally, you live at the property, which makes self-managing the property very easy. You don’t have to travel anywhere if there is an issue. And it taught me a lot about dealing with tenants and contractors and managing properties with minimal risk. No matter what your long-term goals are around real estate and investing, house hacking will jumpstart your net worth while allowing you to gain valuable property owner experience. So I hope you enjoyed. Please remember to rate, review, subscribe, so make comments and potential show topics@globalinvestorspodcast.com. If you’re interested in actively investing in real estate, please check out our courses and mentoring programs@syndicationsuperstars.com. That is syndication superstars.com. Look forward to two more episodes next week. See you then.

Links Mentioned In The Episode:

  • SS41: What is House Hacking?
  • SS159: How To House Hack

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