You don’t have to house hack forever, but you have to house hack

On episode 43 of the Todd Capital Millionaire Podcast we talk a lot about house hacking. We talked about it so much without actually defining the term that I feel like I didn’t do my job as  “teacher” to slow down and inform listeners what house hacking is and how house hacking can help them acquire property to get themselves on track to wealth.

House hacking defined

House hacking is the process of turning your personal, owned residence, into a rental property.  An example of this is buying a single family property and renting out rooms to roommates.  Another example is buying a multi family property, living in one unit and renting out the other units.

When you do this, you effectively position yourself to live for free. Sometimes, you can situate yourself so that not only are you living for free but you are also getting paid to live there.  For example, say you buy a duplex for $200,000.  The mortgage would be roughly $1200 per month.  If you can rent out one side for $1400 per month you cover the mortgage, you get $200 in monthly cash-flow and you also get to keep your working income.  Another example is buying a $300,000 3 bedroom home with a $2000 mortgage, renting both rooms for $800/mo ($1600/mo gross) and living for cheap.

Why house hack

The reason why house hacking is such a game changer is that typically non owner occupied investment properties require a 20% down payment.  That would make your down payment on the $200,000 duplex $40,000 and $60,000 on the $300,000 condo.  Given that the average American doesn’t have $1,000 in savings (says a lot about the “most prosperous nation in the world”), it’s safe to assume they don’t have multiple tens of thousands either.  On the other hand, if you were to owner occupy the property you could purchase using FHA financing and pay around 3.5% down.  This brings the down payment down to a reasonable amount that you could save or borrow from a family member.  This is significant because it makes the property easier to acquire, AND because it inflates your cash on cash (down payment) return.

I was first introduced to house hacking through my step father.  Before him and my mom got married he owned a nice home on top of a hill and had two roommates renting from him.  This was before bigger pockets and before house hacking was in our everyday language.  When I heard that he did this my mind was blown. I always knew that when I bought my house (as a single man) I would do exactly what he did.  When him and my mom got married his roommates went their separate ways and my mother, sister and I moved into the house on the hill.

It’s a temporary investment in your forever

You don’t have to house hack forever and you don’t have to sacrifice FOREVER but in the words of Kendra Barnes, “if you don’t come from wealth you have to be willing to get uncomfortable”. You have to see everything as an investment.  Investing isn’t limited just to money.  Sometimes you can invest your COMFORT and get a return on that comfort.  Here, that would be property ownership, cash flow, appreciation and the success of keeping the other 16.5% worth of cash in your pocket.

Most people use the lack of money as an excuse to do nothing.  In actuality, most things don’t cost money and if they do they can normally be replaced with a money substitute. Your job pays you for your skills.  You trade your skills for money.  Your job doesn’t tell you that it takes money for them to give you money.  You don’t give your job money for a return on investment.  The same is true in all other areas.

Your skills and knowledge are worth money.  Your comfort (living in a less than desirable area and using the margin to save and invest) is worth money.  Your time is worth money.  If you are giving up either you should be compensated.  You can be oppressed and comfortable or liberated and uncomfortable.  But there are certain true comforts that come with being liberated that far outweigh the convenient comfort of being a victim, an employee and a slave. Comfort is temporary, ownership is forever. 

Don’t buy your dream home with working income

The worst thing you can do is buy your dream home with your working income.  That is like a disaster waiting to happen.  BKF preaches against this constantly.   Assets buy luxuries and your dream home is a luxury, not an asset/investment like they tried to tell us.  As someone who has been fired a few times I am adamant about creating passive income (assets) and wealth so that I can then afford to purchase the home of my dreams with a form of self created unemployment insurance.

If you don’t yet have the assets I still don’t encourage you to rent. I encourage you to instead own, within your budget.  If you are married this budget should be so that you can pay your mortgage out of one persons salary, comfortably.  You might not be balling and stunting, but you will be smarter than the average home buyer who buys what they are qualified for instead of what fits into their financial plan.

Your struggle isn’t over yet

If you aren’t where you want to be in life, your struggle isn’t over yet.  There are a lot of strategies that are necessary for us to catch up in the wealth race and just like being broke in college, it doesn’t last forever.  Struggle doesn’t disappear our struggle just get leveled up. As you set new goals you will HAVE to struggle.  But if you don’t struggle you will just continue getting what you have always had.  If a weight lifter wants to go heavier they have to struggle.  Struggle means progress.  House hacking means progress.

Remember that house hacking is a temporary move to get to the end goal.  You can sit around talking about how expensive it is to own a home OR you can find a way.  House hacking is a way. It isn’t the only way but like I said, we mentioned it a ton in episode 43 so I wanted to cover what it really meant.  You can find episode 43 here: http://bit.ly/2ieyuBZ

As always, if you are interested in joining the investment club for stocks or the investment club for real estate email info@capitaltodd.com 

Be great, invest well

Todd Millionaire

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