The EASIEST Way to Invest in Real Estate in 2023

this is the biggerpocks podcast show 7 45. I love obviously love house hacking as a strategy and oftentimes when I'm talking to investors the main objection that I hear is I don't want to share walls or my spouse I can't I'm not going to get my spouse to share walls or I don't want to live next door to my tenants I'm living in my dream house right now because I bought a house hack for two years two years of uncomfortability one year of uncomfortability could change the trajectory of your life do you want to be wealthy or do you want to be comfortable and if you want to be comfortable why are you even here what's going on everyone this is David Green your host of the BiggerPockets podcast here today with my co-host Rob abasolo and Henry Washington as we break into the most important phenomenally underrated strategy you cannot afford to miss in 2023 yes that's right we are talking about house hacking today we're going to cover what you always need to keep in mind if you're house hacking and how things might have changed in 2023 causing you look at this a little bit differently we get into affordability risk cash flow why experts are doing this why more experts should be doing this and for those of you with capital and experience make sure you tune in because I think everyone should be house hiking throughout the real estate investing journey I know I do and so do others like James dainard Brandon Turner mini Jensen Rob babasolo Henry Washington and more today's quick tip don't just house hack adopt house hacking as a mindset there are a lot of ways that you can find expenses in your life and you can either eliminate them or turn them into income I was blown away the first time that I heard Amazon would do this is they would literally look at their expense sheet and say what do we spend money on well we're spending a lot of money to to for servers to host our thing well why don't we start our own company where we have our own servers and then hey we can rent them out to other companies that need them that's a company that became AWS that mindset that way of looking at expenses and asking how can I turn them into income can change your financial situation for the future train yourself now to start thinking like that Today's Show we're going to get into three things we're going to cover in today's show and more why house hacking in 2023 is one of your best options about the benefits and the opportunity that you may not be thinking about how you can get started and why this is not something just for beginners why you shouldn't be stopping at just one or two house hiking isn't just about houses it can unlock Capital everywhere all right Rob Henry anything you guys want to say before we get into the show I think this is one of those episodes that spouses are going to send to their spouse and they're going to say see see Rob Henry and David said to do it we gotta do it and I think a lot of people will kind of change their tune on on their stance on this I agree I think you hit the nail on the head when you when you kicked us off by saying underrated I can't reiterate that enough how underrated of a strategy this is and people do they stick their nose up at it either because they're experienced and don't think they need to do that anymore or because they don't want to deal with some of the uncomfortability or inconveniences that come with it but I'm telling you stick around and hear us out this is something we all need to continue to do yes sir and you need to understand the cost of not doing this we are talking about hundreds and hundreds of thousands of dollars if not millions of dollars in money that you could be making and saving in the future and Rob tells a story about how his first deal turned into his first house act which turned into a mill Billion Dollar Empire that he's sitting on now built at the feet of real estate and after your spouse does listen to this and they finally agree and the weight is lifted off your shoulders and the two of you are approaching real estate together and you're full of gratitude simply DM me on Instagram for my mailing address and you can send me the gift that you no doubt will want to after they listen to this show all right let's get into it all right welcome my friends Rob and Henry to our show today we are going to dive into probably the most oatmeal bran muffin boring strategy in real estate yet by far my favorite strategy I cannot stop talking about it I am an evangelist for this I I do long distance investing I do burr investing I do short-term rental investing I do multi-family I do commercial I do all of it and I still can't stop preaching the gospel of house acting it's just way too good so house hiking for those that have been living under Rock and haven't heard is turning your house into an investment property basically it's taking the place you live and using it to generate income there is a host of benefit it's to using it and we are going to talk about why 2023 is your year to house hack Rob what's your thoughts on this I am a big fan of house hacking I have said for many years that I attribute all of the wealth that I've ever built because of house hacking because I was able to really sacrifice the short-term comfort for long-term gain right I shared my space with strangers with friends I've rented I've Airbnb tiny homes on my property little studios I've mingled with people I've had awkward conversations with people but all in all the rent that I've been paid from house hacking has saved me from ever paying a mortgage and I could not be more grateful for this niche in real estate awesome man Henry what about you man house hacking literally changed my life I have multiple long-term rental properties and I can tell you without a with a shadow of a doubt that I am literally sitting here right now in my dream home that we bought because we were able to house hack for two years I can also tell you that even if I had never bought a single other rental property for my portfolio I still could have got into this property and lived here and afford to live here just because of the house I could did alone changed my life that's awesome man now house hacking helps you in so many ways one of which is it covers your housing costs why you're trying to break into real estate investing so so few investors understand how important it is to actually manage their own money have a budget track your expenses know where your money is going to be going they just think no no I want to buy real estate so that I can spend money on whatever I want and it rarely ever works out like that when you start tracking your income one of the first things that you'll find is your biggest expense is housing right so it's very common to get these books about like saving your way to being a millionaire over 700 years of putting your money in the stock market and it'll grow the problem is that whole like save a cup of coffee every day don't spend five bucks model it's like it's such a small chunk of your income that if we were like Methuselah and lived to be 900 that might actually work by the time you hit four or five hundred years old you'd have a lot of money but we die before that there needs to be something more aggressive eliminating your biggest expense your housing allowance is a far far Sounder and wiser way to get money saved so that you can get into real estate and the problem is when you don't house act you're giving up more than just what the property is going to be worth you're giving up all the future properties that you would have made see real estate Works in this like exponentially Progressive manner whereas snowball forms you get your first deal you create Equity you pull the equity out you buy three more those get even more cash flow you save that and equities grow and you reinvest the cash flow you reinvest the equity now you went from one to three to eight and it exponentially grows that's why you hear people like us that have been investing for five to ten years that are having conversations that are like it just seems so easy to us well it wasn't when we were starting it's hard for every snowball to pick up steam when you first get started and when you don't house act you're giving up the future 10 20 30 years down the road of tens of millions of dollars that real estate will build for you there's several ways that you can get involved there's the load down payment options this is probably why I like it the most it requires less money FHA Loans or you put 3.5 percent down if you're having trouble coming up with the rehab and you can find a contractor that'll work with it there's a 203k loan which is like an extension to an FHA loan where you can borrow a 97 and a half percent of the construction cost as well and when you're only putting down a small amount of money this is why I think it's even better than Burr when you can pull it off the value of Burr is that you get your money back out of the deal well if you only put three and a half percent into the deal there's nothing to get out right you don't need to go through all the headache of finding this Fixer-Upper property and going through a construction hoping the appraisal comes in and doing all the things we do to make real estate work it's easy you just buy the best house in the best area that you can afford with as much money as you can get pre-approved for and put as little down as possible and boom you're started with real estate investing anyone can do it people can do it families can do it if you want to get invested in real estate but your spouse isn't completely on board you can often get them into this as opposed to let's go put 25 down on a 500 000 house let's take our whole hundred thousand dollar Nest Egg dump it in one property and hope that it works out versus yeah let's just take out of that hundred thousand dollars to buy a 500 000 property we only need about 17 grand 17 500 like that's a much easier pill to swallow than the full hundred thousand dollars so that's what I think about it do each of you have anything you want to share and just like how people should be looking at house hacking in 2023 well what I like about house hacking is that you can get very creative with it right right so when you talk about what the actual definition of house hacking is it's renting a room or a space or a unit on your property to subsidize your mortgage that's ultimately what it boils down to right and so a lot of people will say well I don't really want to I don't want a Stranger in My House living with me I don't think I can do it um I think I've got some thoughts around that I think Henry does too but you don't have to let people live in your your house right when I bought my my house in La it had a 279 square foot apartment Studio like underneath it and I airbnb'd that studio for a long time and then I rented that to a long-term tenant I never had to see those guests or those tenants and they subsidized 50 to 75 percent of my mortgage of my forty four hundred dollar mortgage right and then I built a tiny house in my backyard and again that's not connected to my home I would see guests walking in and out of that house but there are just so many ways you can break into it I talked about this on another episode where I actually rented an airbn and B that was an Airstream in someone's backyard that they craned back there and they were charging like a hundred bucks a night and that subsidized their mortgage so you can get super creative with it and depending on how introverted or extroverted or social you are I think you can sort of adjust what house hacking means for you all right Henry let's move to you what are some ways that people can get started if they want to get into house hacking yeah absolutely I think the the best way I what I like about what Rob said is you're absolutely right you can get creative but the best way to get started is obviously you need to find a place that you're going to want to live and house hack right so it's all about that property search and uh it's it's all about to me it's about getting creative right because if you don't want to you know live in the same direct home as somebody else then you look for a duplex quad Plex multi-family if you don't want to live in a duplex quadplex multi-family you can look for properties that have mother-in-law suites or in-law quarters or some sort of other detached type of living situation right so whatever your comfort level is there is probably a property out there that will fit your comfort level and needs you just have to be you just have to be diligent and smart and creative about how you're searching and what you're searching for so it's about that open communication with your real estate agent who's helping you to look setting up the right keywords with your searches right I was fortunate enough that my my house hack was a whole separate house behind mine so didn't have to share the walls and then what Rob said is also true like the true definition is just monetizing that house to subsidize your mortgage and so people hear house heck and they go oh I don't wanna I don't want to be next to my tenants or you know I don't want to share walls but that doesn't have to be the case just like Rob said you can also look at something like I call them super short-term rentals like you can something look at something like a platform like peerspace where you just rent maybe a room that you've curated to look a certain way or maybe uh an office or some other small space where you can rent that Sprint that space by the hour to somebody who wants to come in and shoot a commercial or a video or all kinds of things people look for curated spaces for hourly rates there's even ways we you can just rent out random space in your garage for other people to store their stuff there's so many ways to house hack so being able to find a property that fits your comfort level and your needs is huge yeah I think there's a website called rooster I don't know if they're still in business but it is basically Airbnb for storage where you say hey I got a whole garage come put your storage in my garage and you know pay me 75 a month or something like that right and so I was like man they've really thought of everything like you can you can really rent out anything in your house and it probably makes sense they're going to start renting out fridge space here pretty soon all right I've had clients that bought a house with us and they rented out the pool in their backyard people would pay like 150 bucks for two hours to go swim laps or teach their kid how to swim I've seen people put like little mini putting greens in their backyard and people will pay to go back there and use that they'll rent out the RV access and someone will pay a couple hundred bucks kind of like a mobile home park to put put a trailer back there you know as you were talking Henry I was thinking about how there's people that will teach make 200 cold calls or drive around for seven hours looking at houses and mail a letter to someone with a with a Shabby yard but they're not willing to look on Zillow for a property that has more bedrooms or more space in the backyard that they could use like unfinished square footage that could be very easily converted like I think house hacking is almost it's one of those things that's so obvious that you just look right over it like no it can't be that easy it has to be harder let me go try to find something that's more difficult what do you guys think about like oh no first Henry I want to tell us what are tell us about your Washington wealthy walls principle the wwwp wwwp so we here at the wwp are firm Believers in that wealth is not built inside of your comfort zone no one ever builds wealth in a comfort zone you've got to get at least a little uncomfortable if you want to start Building Wealth when I I love obviously love house hacking as the strategy and oftentimes when I'm talking to investors the main objection that I hear is I don't want to share walls or my spouse I can't I'm not going to get my spouse to share walls or I don't want to live next door to my tenants right and and those things are or can be viewed as minor inconveniences why are you looking into a way to build wealth to replace your income replace your job get to Financial Freedom these are tall tasks life-changing tasks and you're concerned about sharing a wall for a short period of time are you kidding me you've got to get a little uncomfortable who cares if you have to share I'm living in my dream house right now because I bought a house hack for two years two years of uncomfortability one year of uncomfortability could change the trajectory of your life do you want to be wealthy or do you want to be comfortable and if you want to be comfortable why are you even here it's a great Point Rob one of the big issues in 2023 that we're all struggling with is affordability like sellers don't want to drop their prices to the point that we think it's a great deal as a buyer but interest rates are so high that even as prices come down a little bit they're still not at a point where they're going to cash flow really strong or sometimes at all so there's a bit of a stalemate what do you think about house hacking in 2023 as a solution to this affordability standoff personally I think that house hacking is the most important pivot that Real Estate Investors can start to consider for 2023 because you're right things are really expensive and now I do think that sellers are starting to drop prices a little bit but even with that the interest rates are still really high so even if a seller drops their price fifty thousand dollars interest rates being what they are still makes that a relatively expensive place to live relative to what it was a year ago and so I think people now are at this at this standpoint right they're at the forklift road do I want to live in a house and sacrifice a little bit of comfort or do I want to keep renting and I think for the people in the former group who are willing to rent a room to subsidize the mortgage it can effectively make it significantly more affordable let's say that you're talking about a three thousand dollar mortgage that a year ago might have been twenty three hundred dollars with lower interest rates well if you're willing to sacrifice some of that comfort and you can get a house that you can rent a room out for a thousand dollars now you effectively have subsidized it to where it is a little bit more normal to what prices were a year ago so I think people really have to start opening their minds to this especially for the people that are very impatient and have been waiting a long time to get into a home and are really frustrated with the interest rates we got to do things that make us a little uncomfortable to get ahead just like uh Henry was saying like do you want to be uncomfortable do you want to be wealthy and I think most people that are in this space and that are listening to this podcast right now I think we all have the similar mindset that we want to build wealth yeah and I I think there's a huge contingency of people listening to this right now who've got some money saved up who've been waiting for the market to crash they want to buy real estate they know that they don't want to be a renter forever they've already committed to that they don't know when when do I jump in it's a game of double dutch and you're like oh you're waiting you're watching that rope go you're trying to time it but it never quite feels like the right moment and then oftentimes Market can take off on you before you realize what happened you're like oh that was my window right when I blinked one thing I love about it is the hesitation that you get to buy real estate when you're not sure what the Market's going to do is you feel like I got one shot your Eminem it's a beginning of eight mile you're sitting there with vomit on your sweater you're super nervous you're like I only get one chance to go crush this and that's massive pressure right when you're house hacking you take that hundred thousand dollar fifty thousand dollar savings whatever it is that you've earned over time and you only have to spend a small chunk of it you are decreasing your risk and preventing yourself from spending your entire nest egg on one deal at the wrong time instead of spending the whole hundred grand you're spending 17 000 of it which you can save back again over a period of time so that it's not like it's the end of the world if you jumped in too soon it's better that you actually got the property and then when you're extending that over the next 30 Years there was no perfect time the perfect time was 30 years ago right when you're looking at it in the moment you're really trying to get the timing right when you're looking at it over a longer period of time it doesn't matter quite as much and so when you're house hacking you're reducing your risk of even buying in at the wrong time time because you still have a lot of capital for it to buy another one next year to buy another one next year versus when you're going in there trying to buy that perfect Airbnb you got to put 25 down on the deal then you got to dump money into Furnishing it you can run out of cash Rob what say you well let me ask you this David if you're going the FHA route and you're putting down three and a half percent can you tell me a little bit like how often can you do that what is the FHA guideline say can you buy a house every year or is it every two years you can buy a house every single year but you can only have one FHA loan at a time okay so you'll get an FHA loan you'll put three and a half percent down the next year you'll just use a five percent down uh like a regular conventional loan and then maybe you can refinance out of the FHA when you have more equity and then use the FHA on a future deal and this is so important in 2023 because we don't know what the Market's gonna do that's what I'm getting at it could go down it could go up there is no sound advice we can tell you guys because no one knows we don't know what the fed's gonna do we don't know what the Biden Administration is going to do we don't know what the next president Administration is going to do but we know that if you don't buy real estate at all you never actually get out of your situation okay so this to me is like the perfect medium you don't want to spend all your money and hope that you bought in at the right time but you don't want to do nothing and just keep watching as life gets away from you so you reduce your risk by taking on more discomfort just like Henry he said you rent out rooms to people maybe you gotta deal with some noisy walls you learn the fundamentals of real estate but you put as little down as possible to get as much real estate as you can I mean ultimately I I my personal belief for house hacking it's not about printing money and making gobs of cash I just genuinely feel that house hacking is about getting out of your mortgage because the faster you can get out of paying for your mortgage the faster you can start saving that money and compounding it over time right so if you're able to get into a home let's say that three thousand dollar mortgage example I was talking about earlier and you're able to get two or three roommates in that home that pay your three thousand dollar mortgage what have you done you have saved yourself thirty six thousand dollars a year that you would not have otherwise and now you can use that thirty six thousand dollars to invest in real estate in some other capacity and we just did an episode I don't know if it's aired yet that talks about how to get into real estate for ten thousand dollars thirty six thousand bucks you can do all the things we talked about three times three and a half times I'm so glad you brought that up bro because that was exactly where I was going to go next I talk about house hacking changed my life and it did but what really changed my life was the amount of money that I was intentional about saving because I didn't have to spend it on the mortgage we actually took what we were currently paying in our mortgage before we bought that house and put that up against what we then had to pay or not have to pay by doing the house hacking and we were intentional about continuing to make that mortgage payment we were used to making we just made it to ourselves in a savings account right and we could watch that money grow and as we watch that money grow it triggered the chemicals in your brain that want to continue to see that grow and so every time we found some extra money we were throwing it in the savings account just by doing that house hacking and seeing that money grow it helped us to get more creative with more saving that helped us save up the money that we could then use to invest in another property so it's really yes house hacking is a phenomenal strategy but if you're not intelligent or diligent about the savings that the house hacking provides then you're doing yourself a huge disservice yeah it's basically meaningless at that point right yeah all right so we're all on board with house hacking as the best strategy that we can think of in 2023 It's a combination of the lowest risk and the highest returns it also sets you up to buy more real estate in the future hopefully when the market crashes and we all want to jump in now you've got all this money set aside that you've been able to save from the examples that Henry and Rob both provided so when it comes to getting started Henry what are some things that people need to know about underwriting the deal what it looks like to get your first property Etc yeah I mean it's it's it's if you're shopping for a home right people are very familiar with shopping for the home process it's very similar you're just shopping for a home that's going to meet your particular house hacking requirements so you need to connect with a real estate agent preferably one who's either worked with investors before or understands the concepts of house hacking so that they're sending you deals that make sense to kind of save you the time time of wading through lots of listings that aren't going to make sense for you or your goals you want to also get pre-approved right for the loan product that you are going to use to be able to buy that property so you can know how much you are you were going to have to put down or how much you were able to get approved for now there are some caveats to that as well because there may be some education that you have to provide to either your agent or your lender on um on the process or what they're looking for because there are multiple loan products for this and not every lender is familiar with the the types of loan products that are neces that that you can use to do this and so you do need to do some of your own education but you want to make sure that you're working with people who um if they don't understand are open to you educating them uh I know that you know you have this this you know you are in the mortgage industry David what what do you think about being able to connect with the proper lender to meet your house hacking needs well you want a lender that has worked with people doing the similar thing before because a normal lender can get you a loan but now you're sort of on the hook to figure out what pieces you might not be aware of so there are different down payment requirements for duplexes triplexes and fourplexes and single-family houses that wasn't the case a couple years ago if your lender isn't aware of that or doesn't tell you that you're like oh I'm pre-approved for 500 000 and then you go find a duplex for a Triplex it's 500 000 they go oh no those you got to put 10 down or 15 down it's not like a single family home you don't all that work now it's not going to be helping you there's other lenders that can propose Creative Solutions so you you find a property and you don't quite have enough money to buy it and they say well if you can get a gift from a family member you can use that for the down payment you might not have even known that was a possibility if your lender didn't bring that up to you and then you also have the good lenders like how we train ours they're going to look at your other assets and they're like well you get an FHA loan on this property about seven years ago that you're at a 5.75 interest rate we can refinance you out of that get your your PMI dropped off of it it's called something different on an FHA loan but it's the same idea as PMI uh save you some money there maybe your rate goes from 5.75 to 6.25 but your payment's actually less because you don't have PMI and you can pull a little bit of cash out of that property and now you can use an FHA loan on the next deal and you go from like oh how am I gonna do this to oh that's super simple and there's other benefits well isn't there an opportunity as well to use the rents from a house hack towards your DTI I don't know if it what are the rules there because I know that probably you can't use rents from a room but if you bought like a duplex couldn't you apply the rents that you'd get from that duplex towards your DTI they'd kind of swing back and forth on if you're allowed to do it in a multi-family property most of the time they don't want you to but what you can do is buy a house as a house hack move into a new house next year and now you can use the rents from the first one to help you qualify for the future ones so you may not be able to do it on every individual house but when the minute you get your second one you start to get that Snowball Effect we were talking about and everything gets easier for you with Progressive deals what's your guys's thoughts on how they can use Bigger Pockets calculators to help them figure out what their payments would be on the property in case their agents aren't David Green Team agents that are experienced in helping run numbers for them my thoughts are they should use it it's a very easy calculator to comp out a deal like put in the numbers put in your price put in the rent and it'll spit out basically if it's a good deal or not but it's it's a very intuitive tool I think you can go over to biggerpockets.com and use it for free I think you get several uses for free before you have to make an account or something like that that's right it's funny because this sounds like a Shameless plug but it's not uh before I was ever associated with Bigger Pockets I was using that calculator I still use those calculators today they're there because they're good so just use them they're easy they just tell you exactly what to do and you don't know what to do there's a little question mark you're like oh that's what that's asking me thank you that's a bigger podcast does we make things very easy for people that want to complicate it the Highlight that I want to that take out of this how to get started here is the goal is not to create a lot of cash flow out of a house hack occasionally that happens sometimes the pitcher leaves a fastball right over the middle of the plate and you just crush it those deals sometimes come your way generally speaking the goal is not to get cash flow the goal is to remove your mortgage payment the goal is to allow you to save more money and when you do that over several properties the savings of your mortgage turns into cash flow when you move out of it and you eventually live the rest of your life never making a mortgage payment again which is how Henry was saying he's able to live in his dream house it's just a little bit of delayed gratification getting that snowball rolling down the hill early that becomes something big that you then can use to take on some of the big cool multi-family projects or stuff that we talk about here all right I want to transition a little bit into into picking the market right Henry are there markets you've seen where house hacking doesn't work or doesn't work as well yeah I mean it obviously the the more expensive Coastal markets you know the New York so San Francisco Cisco sometimes even the LA's to San Diego's right where the cost of a house is so expensive that even when you house hack you're not going to be able to completely offset your mortgage and you're still going to have to cover a significant amount to that mortgage and then you start and then you're and then you're moving into the realm where house hacking could get risky because not everything goes perfectly if you end up in a time frame where you don't have a tenant right that's all on you to carry that and if you're buying something with a mortgage that you can't afford to pay unless you're house hacking in a very expensive Market you can find yourself in a sticky situation and so in in those very expensive markets I think you have to be super diligent with the numbers super and and be very open with yourself about your budget and what you can afford to do in a worst case scenario and in those situations maybe it makes sense to look at a different strategy but but but make sure that you have budgeted and done the numbers and understand exactly what you would be comfortable paying above and beyond what your share of that mortgage would be and if it becomes unaffordable at that point then you look at pivoting strategies you know oh first let me ask you Rob what do you think you agree uh yeah mostly I don't know I think you can make it work in any Market I mean I moved to LA and I made it work there now you may not be able to rent it to somebody in like the long-term sense but I bought my house in La 624 000 it was about four times the amount that we bought the house in Kansas City and it was that was a lot that was a lot it was actually a very scary amount we were scared to tell anybody in our family or friends how much this house was because we just didn't want them to judge us for buying this expensive houses right and so in my mind I was like well I had heard about Airbnb and that's kind of the beginning of everything right and I was like well I think this little 279 square foot apartment if I rented it long term I could make maybe like 12 to 1500 bucks a month which isn't bad but if I put it on Airbnb and list it for 100 bucks a night I think I can make like two to three thousand dollars a month that's exactly what happened so I was able to make that property work you know when I was making three thousand dollars a month there on my 4 400 mortgage now my mortgage is 1400 hundred bucks and I was able to make that work and then I built the tiny house in the backyard and I was renting that out for at its peak like three to four thousand dollars a month so I was actually making money on that property very quickly once I figured out how to make that deal work but I didn't walk into that deal blind right I had done the math I'd done my comps I'd run the numbers on Airbnb and I made that work for me and even on the flip side of that I mean I've looked at I think it's like you find the house that you want and you figure out how to make it work right because I looked at a lot of houses in La that were under 624 there were houses that were like five hundred thousand dollars that I was like I would never dare put my wife in this house right and so when I mapped it out I was like if I don't house hack and I buy a house at half a million dollars we're gonna spend so much more money than if we just spent an extra 124 000 to buy our house and then we house hacked a little studio apartment under it and so we made that deal work so it was actually a lot more affordable to us to to buy a house in LA and house hack than it would have been to buy a house otherwise it actually would have been impossible otherwise I think you guys both make super good points and it's this I love that I now get to be the one to sort of like parse out what each of you said and simplify it after hearing your cases Henry's case is right in that more expensive markets make it difficult to get your mortgage covered completely or cash flow 100 true so if you buy a triplex in the midwest maybe your your mortgage on that's 1200 bucks you rent out each side for 600 so you end up living completely for free in that case right like the tenants are paying 1200 and you're living for free then you move out and you're making 1800 on the triplex but it only costs 1200 boom you got some cash flow right out the gate but if you go into a coastal Market you're probably not getting 100 of it paid for the the other side of that coin is that the person who bought the triplex is now making uh they're saving a total of eighteen hundred dollars a month because that's what they're getting in rents okay but the person in La who was paying 4 800 for their rent and now only has to pay a thousand dollars is actually adding thirty four hundred dollars to their to their wealth every single month so you end up making more in coastal markets but it doesn't show up on the balance sheet of cash flow Okay and like so each of you are right in a sense and that's something that people need to be aware of when they're deciding how to house hack in their Market if you're in California where we are you're not going to get 100 of your rent paid but you're ultimately going to make more money every month than someone in a cheaper market and if you're in a cheaper Market you do have the opportunity to get 100 of your rent paid or maybe even get some cash flow but you probably need to buy more properties to make up for the fact that not as much money is coming in per property that's where you're going to need to make sure what you're doing it's even more important to save your cash so you can keep buying they work in both you just approach it a little bit differently so for some context here if Henry was able to drop his mortgage from twenty five hundred dollars a month down to 500 a month from house hacking so he's saving two grand a month that's about twenty four thousand dollars and you buy a house for about 500 Grand and put five percent down that's about twenty five thousand dollars that is pretty much a hundred percent return on your money where else in 2023 can you get a hundred percent return on your money and get real estate where rents are going to go up every year and have a loan that you're paying off we haven't even included that return and be getting appreciation and know that instead of your rent going up every single year the tenants are paying you more every year in addition to the 100 return I don't think there's anything even close in 2023 that will give you that that isn't wildly risky okay we're not talking about like a crazy cannabis Enterprise here we're just talking about boring real estate they get you a hundred percent return and all the future upside so now Rob when it comes to house hacking there's more than one way to do it people typically look right down the box and they're like this is the only way to house hack it's actually tons of options available many of which fall within your specific purview so tell me what are some of the ways that when someone buys a house as a primary residence in 2023 that they can take advantage of some of the other more lucrative strategies with their home that maybe they couldn't in other in other circumstances yeah man this is where the sky's the limit and before we even dive into buying a house I actually think that you can house hack without owning a property this is a very popular model in New York specifically where you go and you obtain the lease and you effectively find the roommates you're the one on the hook with the landlord but you actually find the roommates and you basically decide what they pay you for their room and you subsidize your your cost that way my wife's best friend was part of this and she understood that where she went and basically applied for a room at this um this lady's apartment and she knew that she was paying a lot like more than market rate but it was furnished and she didn't even have to like do anything she didn't have to pay a deposit or anything like that but the person who was running that lease paid like 500 a month versus the other two roommates paying twelve hundred dollars a month so that's just a quick example of a way to supercharge house hacking if you really don't even own the property if you're like man I don't have the three and a half percent I got to stay I got to stay renting that's a total option for you too another way obviously we're talking about the 12-month rentals but what I wish I would have done when I got started I just didn't know about short-term rentals and we all know that that's my thing and I love it but you know if you're not the kind of person that wants to commit to somebody for 12 months at a time which is super fair right because you don't know how your tenants are going to shake out you could rent your room on Airbnb there is a section on Airbnb that says private home and then there's like there's like entire home shared space shared room you can actually rent to two people to to share the room hostile style you can rent the room one at a time and you can actually make a lot more money doing this than finding a long-term tenant because you can charge 50 to 125 a night for your room and if you did that 10 times a month like 10 days for example that might actually pay you more than renting to a long-term tenant for 30 days at a time and then there's also the fact that you can do medium term rentals as well you you know with short-term rentals you never really know what types of regulations there are and so if there are regulations against short-term rentals the medium-term rental bucket actually gets you out of short-term rental regulation and when you're renting to people 30 days at a time you're allowed to do that in every city because that falls under long-term rental jurisdiction so you could rent to people on a medium-term rental basis and also there are a lot of cities that will allow you to rent your property on Airbnb if you live in that specific property it might be illegal if you don't live at that property but if you live there they understand that they'll write rules in place for those types of Airbnb hosts that are legitimately trying to subsidize their mortgage so it isn't just we're not in the age of 12 month thesis anymore I think you could do medium term rentals you can rent your room five days a month if you want to you don't even have to own the property the sky's the limit here right so you find a deal that you like and you make it work however you want to based on your comfort level and how much money you need to make off that property so where else in 22 23 can you find a strategy that lets you do a short-term rental in a market that won't let you do short-term rentals right it's like Los Angeles Southern California my real estate team down there this is one of the ways we figured out around all the restrictions against short-term rentals because the neighbors hate it they just we don't want it so then the city restricts how many permits that they issue and they they put all these ridiculous restrictions in place and it makes it so hard to do and so you just I guess I can't do short-term rentals in 2023. not so you buy that property all of a sudden a lot of those laws that affect tenants don't apply to you it's an absolute awesome loophole so one of the things that you'll see in a city like Los Angeles is they'll say if you buy a property that has tenants in it and they're paying like 400 a month instead of 2500 a month you can't raise the rate you have to honor the lease that's in place and like it just makes it so those properties don't make sense but if you're going to live in it you can absolutely bump them out of one of the units I think as long as it's the biggest one and you can move into it and then after you've lived in it for a while you choose the one to rent it out you can do that at Market rents a lot of the stuff it stops investors doesn't stop homeowners and you have to start thinking of house hacking as a homeowner strategy that works for investing and you couldn't get around a lot of this stuff that's one of the reasons that I just wanted to highlight house hacking in 2023 has so many benefits that other strategies don't have all right Henry once you've gotten the strategy down tell me what's next how do you get into this snowball that we talk about should you just get one or two house acts and stop or should you keep going oh man my personal opinion is you should house hack every single year until your spouse or your significant other says I do not want to share walls or live in a duplex ever again until I hear those exact words I would just rinse and repeat and repeat because of all of the highlights we talked about leading up until this it's such a phenomenal way to build wealth are you there yet by the way or are you still house hacking like what's your current situation and I am not house hacking in this one but as we are uh we have looked at other homes and I literally won't look at them unless there's a way I can monetize part of that home going forward once you see it you cannot unski it yeah my wife knows man we've house hacked for so many years I'm at that point she's like uh-uh we're good the money is not meaningful to us anymore wait you don't she's like I know you want the content and I know you want to talk about it on you no more and I'm like okay that's fine we did it we earned our badge of honor I've done it you know I've got my my Rite of path you got your merit badge yeah exactly yeah no one other things the Highlight here is that house hacking is not just a strategy it's a lifestyle it's a way of looking at the world like Henry was just saying I can't not look at a property and think how could this produce income because if it doesn't produce income I don't want it we'll find some way to make that rhyme and it'll be a fun thing that we start saying this is especially important for new investors that are trying to get started that are trying to get that momentum going with the snowball okay we show people like I think Craig curl up wasn't just raining at his house he was like renting out his couch and we were teasing him like at one point he's gonna rent out his clothes right did you start people start renting out their cars on turo and they're renting out the pools in the backyard they're renting out saunas there's there's the pier space movement that's starting this is not gonna make you a multi-millionaire okay we're not saying just you know start renting out your goldfish for other people to play with or something like let people take your dog home for a day if they want a dog but the point is you can learn the fundamentals using some of these strategies and those will make you a multi-millionaire in the future you're not gonna stay at this level of house hacking or clothes hacking or whatever we're talking about forever but it can kind of get you over that initial fear of I don't really know how to do this and then once you get comfortable with it you stop doing it with with in a small scale you start to do it at a bigger scale Rob you're a great example of how that worked out can you just paint us a short picture of how you went from house hacking you know an Adu in your backyard to now considering rental Arbitrage on like a 50 unit portfolio in Pigeon Forge yeah yeah so okay so that first house that I bought was 159 000 and we sold it three years later for two hundred and fifteen thousand dollars after all fees and costs and everything like that we had a forty thousand dollar profit we used that forty thousand dollars to put three and a half percent down on that property in LA and after seller credits and everything we actually only paid eighteen thousand five hundred dollars and now that property today has gotten me over two hundred thousand dollars in rents it's worth 1.3 million dollars so just from house hacking like literally like half a million dollars in net worth or a little bit over half a million dollars in net worth from sacrificing that right I could sell that house today and have half a million dollars in my pocket because for four years I chose to be a little uncomfortable and have a roommate and have people in my backyard and people under my house and that's obviously led to the 200 000 in rents that I've gotten from that property has obviously led to me just reinvesting that into all all of my airbnbs I'm at 35 doors now like you said I just got approached about a 52 unit rental Arbitrage Master Lease and Pigeon Forge and I can do everything that I I'm doing today because of what house hacking did for me you know and I I just like I can't vouch for this strategy enough because it has opened every door in my life that I've ever wanted to open so here's the magic it's not should I house hack or long-term rental house hack or short-term rental house hack or Burr house hacking gets you in the door and then you can use medium-term rentals long-term rentals short-term rentals renting out your pool refinancing the house later live in flip you can buy a fixer-upper as a house hack fix it up over a couple years sell it not have to pay any capital gains taxes because it was your primary residence as long as you were there for two out of five years all the stuff you hear us talk about Bigger Pockets almost all of it is compatible with a house hack like I'm trying to think of the right analogy you know that that website zapier you guys familiar with that like it basically makes any computer program talk to anything else like if you have zapier you can do anything else with it house act becomes that at its flexibility it's low risk it's big upside all of this together it just over time and time again shows up as the best strategy possible and going into 2023 this is the one I can confidently tell everybody this is what you should be doing you guys have any last words on what you want to tell the audience about why 2023 is the year that they should be house hacking I don't no I put it all out there a very I'm very very staunch supporter of house hacking lift it up I think it's pretty clear yeah like I put it all out there on the on the podcast just do it it really is one of those things at the very least it builds thick skin and it allows you to just understand like some of the discipline that goes into being a real estate investor and even if you do it for a month you can at least say I did that and everything else after that is I think it makes everything a little bit easier because once you've kind of done a house hack it kind of just like puts you out of the comfort zone that that prepares you for the rest of your real estate Journey exactly man what a low risk way to try AI several of these different strategies that you know you're seeing you're interested in a lot of people say they want to be landlords and then they're landlords and they may not like it well this is a low risk way for you to try it a lot of people say they want to do Airbnb and then they do Airbnb and they don't like it what a low risk way to try it man you can kind of cut your cut your teeth on several strategies learn what you do love what you like best and you don't have to take on a ton of risk to do it with this strategy oh and by the way you're going to be Building Wealth so do it thank you guys Rob where can people find out more about you you can find me over at Raw built on YouTube and Instagram what about you you can find me at davidgreen24 and please do on Instagram social media and YouTube Henry what about you at the Henry Washington on Instagram or henrywashington.com and if you're hearing this message and you are intrigued you're like oh this is what house hacking is I've heard people talk about it or maybe you've been knocked off of your perch of the Ivory Tower Elite think I'm too good for house hacking and you realize 2023 is my year I need to actually get in and do this head over to biggerpockets.com we are more than a podcast we are a website and you can simply put in the phrase house hack into the forums and literally have more information than you could possibly digest if you tried on that Forum advice people that do it challenges they run into how they overcame them strategies that work how people became millionaires just from house hacking plus you can get those calculators we talked about at biggerpockets.com calc and you can analyze to figure out what your property would cost in case your agent is not as good as one of us and doesn't know how to do that but here's what's important you don't want to let 2023 pass and look back 10 years later and say that was one of those open Windows where I could get into the best neighborhood I could still get an inspection contingency I could still get an appraisal contingency rates were a little bit higher but they dropped after that I could have refinanced out of my eight percent loan into a five percent loan and save even more money and I let it pass because I was too busy waiting for nfts to make their comeback don't be that person get into real estate while you can and do it smart you will not regret it this is David Green for the BiggerPockets podcast host signing off [Music] foreign

Channel: BiggerPockets

Views: 191,129

Keywords: invest in real estate, house hacking, house hack, what is house hacking, how to house hack, real estate investing, how to invest in real estate, real estate investing for beginners, how to live for free, live for free, financial freedom, financial independence, financial independence retire early, fire movement, passive income, invest in real estate with no money, house hacking real estate, mortgage rates, interest rates, how to live mortgage free, biggerpockets

Id: M8XaarsoojA

Length: 46min 22sec (2782 seconds)

Published: Tue Mar 28 2023