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    HACK A HOUSE?!

    Written by  John Wagner

    When you think of your first house, you may think of a white picket fence, 3 bed, 1.5 baths, neighborhood street, maybe a nice little breakfast nook. Save some money, make sure you have decent credit, and you’ll get there. 

     

    In the meantime, you’re likely renting an apartment or a space of some sort. Harmless enough, everyone needs a place to live. But in that meantime, you’re watching single-family home prices go up, you’re driving past open houses with lines out the door, and you’re reading headlines similar to “this house sold for $75,000 over its asking price!!!!”. Slowly “the meantime” turns into this expensive, infinitely long path of just paying your rent and the idea of homeownership getting blurrier and blurrier. Discouraging to say the least. What can be done about it? 

     

    *Real quick, some terms I’ll use here.

    “Single-Family House/Home” – The white picket fence in a neighborhood.

    “Apartment Building” – Any 2-4 unit residential building, also commonly known as Duplex, Multi-Family, etc.

     

    You call me! (or text me, message me, flag me down on the side of the road, whatever you see fit.) You say “Johnny, I’d like to buy a house, but I have no idea where to start”, and I make it happen from there! Like most things in life, talking to the experts can be intimidating, especially if you aren’t sure how prepared you are. But here’s the thing, the least prepared person on the planet is 10 steps ahead of you when they reach out to me. You’re probably more prepared than you think, and I am one of the least intimidating people you’ll ever meet. I digress, let’s talk real solutions here.

     

    House Hacking; renting out parts of your primary residence to generate income and put it towards your cost of ownership. More simply, buy an apartment building, live in one of the apartments, and use the rents from the others to pay your mortgage, taxes, maintenance, etc. This is not a new concept, you’ve probably even heard of it. But aside from the low cost of living, I want to point out some other aspects that often go unnoticed;

     

    Affordability: First-time buyer programs and low down payment options work just the same as a single-family home as long as you intend to live inthe property. 3% down, FHA loans, borrowing extra towards your closing costs, all valid here. The bank will also count up to 75% of the rents coming in as income towards the payment, meaning as the price of the building goes up, as long as the rents coincide, your income from your job doesn’t need to go up. AKA, you don’t need 20-25% down, and if you can afford a $125,000 single family house, you can likely afford a $200,000+ apartment building in some areas.

     

    Appreciation: Back to “the meantime”. You’re renting an apartment, waiting to buy a single family house. As you pay rent each month, the value of the apartment building you live in increases, the value of the single family house you’re trying to save up for increases, and you’re out another $1,000 (or whatever your rent is).

    Bad cycle. 

    Conversely, if you were to buy an apartment building, you’re now entitled to the benefits of what happens in the above situation. The value of YOUR building is increasing. If you are paying money out of pocket each month, it’s going right back to you, by way of your asset being paid down (minus mortgage interest). And lastly, the single family house you are saving up for may be increasing in value, but you have more options than just using your saved cash. The moment you closed on the apartment building and started making payments, what you owe on it goes down, it’s value goes up, and what’s left in the middle is called equity. You can draw from that equity, which combined with your cash, should outpace the price increase of the single family house you want.Good cycle.

     

    After you move out: Now you’ve bought your single family house, and you can move out of the apartment. You got there faster than if you were just renting the whole time. You have more cash in your pocket, because you weren’t just renting the whole time. Now guess what? Sell it for a profit, and put even more cash in your pocket. OR, play the long game. Fill your now empty unit with a tenant, you get an annual return from all the combined rents, and the property is STILL appreciating. Money may not grow on trees, but you can farm it out of this building.

     

    In conclusion, I’ll let you in on a little secret. This is what your landlord is doing, and likely has been doing for a long time. This is a money multiplier. Sure, your first house is an apartment building instead of the white picket fence and the breakfast nook, but you’ll get the fence and the nook much faster. You’ll have saved $12,000 a year just by not paying $1,000 a month in rent. You’ll have the first property in your portfolio, which is always the most difficult one. And most importantly, you’re not reliant on your landlord for improvements, repairs, etc. Those will cost you money of course, but if you ask your landlord for improvements and repairs, you can bet your rent is going up.

     

    I eat, breathe and sleep real estate. I am here to help. If you or anyone you know are looking to buy or sell real estate, please contact me.

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