House Hacking Strategy 2022 | Save Your Way To Wealth!
Alright, so let me start out by simply saying I am not an advocate or a believer that you can save your way to wealth. Now, this strategy house hacking, this actually is the one example I can think of that proves my belief system to be wrong. House hacking actually can help you save your way to wealth. So let’s dissect what house hacking is and how you potentially can take advantage of it.
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Welcome to my channel, I am Justin Colby, a 14 year vet in real estate investing almost 15. By the way, I’ve done over 2000 transactions. And I firmly believe real estate is not only an incredible way to build wealth, but you can make a lot of money in the transactional space as well. That being said, I do have some philosophies on how you build wealth and how you get rich to separate things. Many people try to save their way I need to cut expenses. I’m not the biggest believer in that, in fact, I would actually go out and make more money rather than just simply line item my life to death, and then try to cut out all these expenses. That being said, there are some that you should be cutting out the expenses. For those of you out there that are going out to lunch, and dinner every single day, I would probably say start cooking at home. But I digress. Let’s jump into what house hacking is how you could potentially take advantage of it and how it really can help you save your way to wealth.
Well, first of all, what is house hacking house hacking is the business model. That’s what I would say it’s a business model of where you are buying a home to live in and then sharing the expenses. What does that mean? So for example, you might buy a single family home, where you live in the master bedroom and you rent out the other two rooms. This actually allows you to save because you are not having to spend all of the mortgage and the other two renters actually are going to help you afford that the most common definition of house hacking would be someone thinking about buying a duplex or a triplex, they would live in one and then they would rent out the other one or two. The same model still exists whether it’s a duplex triplex or four Plex or a single family home, what you’re trying to do is eliminate the expense of your mortgage. So it just comes down to math, the first thing you should probably do is go to a mortgage calculator, you can simply just Google mortgage calculator, and it’ll come right up on Google, what you’ll want to do is try to figure out, okay, am I going to buy a single family home first, and then I’m going to rent out a couple of the rooms once I buy it. Now the key to that will be understanding what and how much downpayment you’re going to have, and how much you are going to be financing with the lender. You also want to know, for the most part, as interest rates are changing and increasing how much is your interest rate going to be? Again, go to Google and go to a mortgage calculator for that. Now, once you put in those numbers, you need to look at how much a month that mortgage and interest is, you have to account for property taxes, insurance as well. And you can actually even do that right there on Google, it’ll say insurance and fees. Now from there, you need to figure out how much you can actually rent a room out encourage you to go to websites like Zillow to see if there’s anything for rent or you could actually go to Craigslist and see how much people are renting a room for. From there, you can actually just simply do the math, let’s just make the example that you have a $2,000 a month mortgage payment that only includes your mortgage and your interest or your principal and your interest, you still will have property taxes and you still will have insurance. So do some of the math on what your state and city property taxes are and then how much the insurance is going to be. Then go make sure you can figure out each room is maybe renting for $400 or $500 or $600 a month. Well, if you can have two rooms rented out for $500 a month and your mortgage is $2,000 a month. That means every month you’re only spending $1,000 a month for a house that is actually costing you 2000. Now while I say I don’t really believe that you can save your way to wealth, this is actually saving you $1,000 a month and you’re gaining wealth by owning the actual real estate. So the big three advantages are you’re building equity as you live in the home and you continue to make your mortgage payments.
Number two, you are now getting in the game of real estate investing. Most people as someone who has coached now for over nine years and coached 1000s of real estate investors are having a very difficult time just getting into the game. This could be your start to getting into the game to become a real estate investor.
And number three is the saving money. If you can save more money, you can utilize it in other ways that may be something more like you want and or that you need. For example, if you’re able to save $1,000 a month, that’s $12,000 a year that you potentially could go on a great vacation or do something really fun that you would like to do, I actually advise you take that $12,000 And you reinvest it into more real estate. Now here is a downside of house hacking is you’re likely sharing spaces. If you are just doing a single family home, then you need to be very comfortable sharing common spaces like a bathroom or a kitchen, living room, TV spaces, office spaces, you’re sharing the home. So the downside for some and maybe even most will be is they don’t want to share their spaces. If you are in your 20s, I would highly suggest you house hack. In fact, if you watch any of my other YouTube videos, you will see I don’t have a fond opinion about people in their 20s buying homes, I believe most of them are forcing the issue and they can’t really afford it. So if you are going to buy a home, this is the way to do it. Buy a home and house hack it with your friends. And here’s a key point that you don’t want to miss. Make sure you’re getting them to sign a lease agreement or rental agreement even if they are your closest friends or family. You still are treating this like a business. This isn’t just for fun and games.
Now let’s talk about maybe what’s more commonly known with house hacking would be buying a duplex or a triplex and renting out the other two doors. Now again, let’s just use the example of comes down to math if you can buy a triplex for $700,000 as an example, and maybe your mortgage might be I know give or take 4 or $5,000 a month. But they all rent meaning each unit will rent for $2,000 a month, you can see very quickly, you are able to get $4,000 a month from the two units you rent. And if the mortgage is $5,000, you’re only paying $1,000 a month for your principal and interest to live. I don’t know where you can find a place to live for $1,000 a month and you actually own the asset. As I mentioned before, the key benefit to this is you’re gaining equity and you yourself are not having to pay for it, your tenants are, there’s even more creativity. There’s even more creative ways to do this. So if you may have two properties on your lot, you might be able to find an ADU that you can make a short term rental that could be a great Airbnb or potentially you live in the ADU. And you Airbnb the actual home. There are several ways to do this. And I want you to get as creative as possible to think through this opportunity. Remember, you’re buying in principle without you having to pay for it, your actual tenants are, this is a great business model if you keep it as a business.
Now, my favorite idea and concept behind this is not just to buy a house or buy a duplex and then rent out the other unit or a couple of doors I actually would include the BURRR model. Now if you don’t know what the BURRR model is, is buy it, rehab, it rent it, refinance. I would love if everyone did that, that is like the pinnacle of the best way to do this. Why is that Justin? Well, because of this, if you actually buy it, and you even invest and pay a contractor to remodel it, upgrade it and add value, right, you’re looking at the potential of this home, then you can actually gain equity because you added value out of the gate, once then you actually rent it, and then you go for a loan to refinance, you can actually even show them the lease agreement you have with the rentor. And the fact that you’re going to be making the payments, you can pull out all of your capital almost well, you can pull out all of your capital, you’re in to the home or duplex for absolutely $0 and your mortgage payment and interest is getting paid or subsidized by your tenants, there’s a chance a chance though, be it small, you might be able to actually get away with living for free relative to your mortgage and interest. You still have your property taxes, you still have your insurance, but I have heard of students who are in their 20s who have house hacked a duplex and actually essentially are living for free in terms of they’re not having to pay the mortgage because the tenant is and they’re not having to pay the interest based around that mortgage. Now they do still have property taxes and insurance. But listen, if you can BURRR model this house hacking, okay, there’s two different models here, the BURRR and the house hack. That is the pinnacle of the best way to do it. The burring meaning you buy it in rehab, it creates extra value so you can refinance all that out because you have so much equity. You rent it so you’re subsidizing your mortgage and interest. And then you essentially have all that gained equity from every single month that the mortgage is being paid as well as the equity since the increased value. If you guys can do that, that is going to be the ticket. As I said, I’m not the biggest fan of saving your way to wealth but if there is one model that proves that wrong, it is going to be this now if you like this, I do all things real estate, entrepreneurship and business. Make sure you’re liking this video and make sure you subscribe to me here on YouTube. I will see you on the next video. Peace