House Hacking Secrets – Lucrative Ways to Build Wealth Passively {and Live for FREE}33 min read

House Hacking Secrets – Lucrative Ways to Build Wealth Passively {and Live for FREE}33 min read

The Ultimate Guide on House Hacking that Will Help Build Wealth

I have discussed with many wealthy real estate investors and I have come to realize they have all house hacked at some point, which catapulted their success.  Want to know more about how you can too? Stay tuned.

A incredibly effective way to building wealth is by House Hacking.  It is essentially making a real estate investment, living in it and rent the unused part of the house to generate cash.  Then use the cash to pay back debt (and expenses), so you build wealth without putting your cash in. And best of all you live free while doing so.

Sounds, too good to be true?  Not really. It’s simple and to some extent it is not that hard or complicated to even execute the plan.   

Let me explain what I mean.

You’re making an investment, so you are responsible. You’re renting out, so you do tenant management.  

Both of which are basically elements of an active business {sort of}.  So you take responsibility and assume risks. That’s why you get great returns.

Then you borrow enough so you try not to use your money.  Now you are making your tenants pay back the debt you secured for the property.

It’s very simple and that’s real benjamins we are talking here. It is doable and many have done it.

I have done it.  Here is the plan for all you guys with unfinished basement.

I planned and renovated my basement and it costed me dearly. However, I knew from the get-go that I wasn’t going to turn it around rent it.

I had the investment put in basement renovation paid back in 15 months. Sweet, isn’t it?

Now I have a completely renovated basement which gives me an income. And when I go to sell it back it definitely will appreciate for at least the amount of renovation, if not more.

This is not a get rich scheme, but a definite way to get rich and I know you can too.

It’s however not a cake walk.  There are a lot of things that must happen correctly in sequence. Don’t worry they are all simple and you can easily execute on them.

I made this as a step-by-step guide {a thorough one} so I can touch lives of some and change it in a meaningful way. Seriously.

What is House Hacking?

House hacking is nothing but buying more rental space that you need, and then rent what’s not used by you. All for cash flow purposes.

Ideally, you buy a multi-family dwelling, live in one and rent others for the purposes of house hacking.

Now I was clear in defining – buying more space than needed.  It’s doesn’t have to be always multi-family, however, multis usually are the easiest to find and work out a house hack.

Having an unused garage and renting it out is in essence house hacking.

Without a question, I would say house hacking is by far the best way to create wealth in real estate while minimizing risks.  You’ll truly learn to make your path for financial independence.

Here’s why:

  1. One of the biggest expense (at least in north america) is living expense.  House hacks will reduce it or totally eliminate it.
  2. Tenant pays down the debt and you build equity.  While tenants take all the cashflow burden you capture all the upside – appreciation.
  3. Interest payment and other expenses can be totally expensed and you get a great tax break from owning real estate.
  4. Get in with very low down payment.  Usually between 1% and 3.5% investment from your part. And you can control half a million dollars worth of property.
  5. When you sell your house ( your primary house, that is) you don’t have to pay on the capital gains.

These are just a few advantages I laid here to just to show the power of house hacking.

Why House Hacks and What are the Benefits?

Get this one concept and you will intuitively know what to do.  You want to buy, own and control the asset while someone else pays for it.  And you do this enough to become wealthy.

But I will spell the benefits out and motivate you to consider house hacks.

Additional Cash flow

You use your investment to bring more cash flow that normally perceived by the public. That is a broker, seller and everyone else looking at the property.  Don’t you think extra cash flow is good?

If you have the financial discipline you can use the additional cash flow pay the debt faster, and shave a decade of payment.

Or you could save the extra cash towards down payments and buy more properties.

You Live for FREE

That is right.  You either live free or almost free.   If you can just live for free, you’ve solved half your retirement problems, isn’t it?

You should, however, have to pay for utilities and other common share of expenses.

If you are a university student this is going to be a fantastic one for you particularly. Because you can live in one bedroom and rent the other rooms to your classmates.

You can also rent other apartments fully or individually to students.  You must, however, check with your local municipalities code to see how many unrelated, however, can be live in one building or unit.

I think every college grad should try this. I’ve seen some that made money renting and paid for college fee too from the rental income.

That’s free stay and free utilities.  And it is a fraction of the cost of your education. A deal so sweet you shouldn’t ignore.

Cheaper Capital

Since you will be house hacking your primary house, you will ideally be getting the cheapest capital to purchase the property.  That combined with the low down payment is just the perfect recipe.

Oh, did I mention the interest rate environment we are in is one of the lowest in several decades.  

This is so awesome that I don’t know why people don’t take advantage of it.  This is one where you should not only use it, but abuse it.

Introduction to Landlording

This is a great way to get exposed to landlording.  And get experience while on the way building wealth.  It is going to help you beef up your resume.

You need a strong resume of rental portfolio management for lenders to take you seriously.  So, when you go to buy rental properties you are set.

If you want to break into commercial real estate investment down the road, having multifamily units is one step up and will make everyone’s life that much easier.

An Investment that is Closer

When I first started I was nervous to invest in a property that was miles away.  Rightly so, the property manager abused me every now and then and it was hard for me to get the most out of the investment.  

With House hacking your primary residence you will have a much easier job managing the property. Plus you don’t have to pay for a management company. That’s 8% to 10% to the bottom line.

Economies of Scale

Yes, to some extent.

Having 4 Single family home is inferior to having a quadplex. Why?

Well, you have to think about only one roof, and not 4.  You get a break on some of the items this way.

Management is easier because you are not making four trips to collect rent.

Also, having all 4 units in one location cuts your commute down. That being your residence it just makes the commute time irrelevant.

Have I convinced you enough to consider house hacking as a way to build wealth?

Good, keep reading…

Valuing the Property and House Hack Math You Must Know

Know the valuation well – like the back of your hand.

Not a number person?  Don’t worry. The math is super simple and you will have calculators (FREE ones) online to do most of it.

But you must get familiar with the math so you can feel confident when investing. This will also be required, so you can run the numbers and know which property is better, relatively speaking.

I am going to give you quick math, just to know if it’s worth your time or just pass.  But don’t just use only this. Use the simple quick valuation to work through anything that you are interested in.

You will get better and faster at it after using it a few times. I promise.

1% Method (A.K.A 1% Rule)

This is one of the easiest calculations you can do to find if the property is worth your time.

1% method simply is this.  The gross rental that is collected must be at least 1% of the asking price or the purchase price (or what you can reasonably expect to buy).

You only need two numbers to calculate this.  One is the property’s asking price. Which is available when you search the property for.

Second, is the gross rental that is collected.

As an example follow this to understand the math.

Assume you are looking at a triplex in your town listed for $400,000.  1% of $400K is $4,000.

You need $1,334 in rent coming from each of the units.  That is 1334 x 3 apartments will get you $4000. This is the target rental per unit that will get you to the 1% mark.

Use a website such as rentometer to see the going rental rate for a similar size apartment.

Or ask the real estate agent or the owner what is it currently bringing in.

If he/she says that each unit rent for $1500, then that is $4500 gross rental for all three units combined.

That my friend beats the 1% mark and you are now okay to look deeper into this deal.

Again, do not use this as the only valuation technique to buy a property.  This is oversimplified metric. In my opinion, it’s 80% right.

Our plan is to house hack, so you need much more than 1%.  Because my plan for you is to live there and make tenants pay the mortgage.

Capitalization Rate Calculation

This is a fancier term used in all of the commercial real estate transactions.  

The capitalization rate is also called the Cap Rate, for short.  This metric is also a single number that is used to see the value.

But the main difference is instead of taking the gross and calculating 1% as in the previous method, Cap rate is going to use NOI.

What is NOI?  

Well, that is Net Operating Income.  The name says it all.

It is first a net income.  But again, it is only going to take the gross and remove all the necessary operating expense from it to arrive at net operating income.

Understand one thing.  NOI will never include Principal and Interest payments.

Financing is not a part of operations, so you don’t use it in the calculation.  

So think of NOI this way.

If you paid all Cash to buy a property, then your net income will also be the Net operating income.

Wait, I am not asking you to pay all cash.  Just pretend for the purposes of this calculation.

In other words, it is a return on your investment calculation without using any leverage.

I want you to practice this so you can calculate while sleeping. Believe me.

Many brokers and sellers hand twist you with a great return, but they do it on a levered basis. In essence, you would be buying a subpart investment.

You would be asked to put more in down payment and an imaginary scenario will be created to show what a great deal it is.

If you do it like it’s an all-cash transaction, then you will know the true RoI on each property.  And when you compare you know you are comparing apples to apples – from a financial standpoint, that is.

If you don’t get it, here’s an example.

Assume the same house that we are buying for $400,000.  Three units, each renting $1500 a month.

So far so good.

Now let’s introduce the expense side of things.

Gross rental – 4500 (1500 x 3), Vacancy (5%) – 225, RE Taxes (1.5%) – 500  (1.5% is more than the national average), Insurance – 85, Maintenance (5%) – 225, and Other Expenses (5%) – 225.

NOI turned out to be $38,880 on an annualized basis (3240 x 12).

Cash flow calculated for house hacking project
Cash flow statement for this example

Not bad. Now you take NOI and divide it by the property value.  What you get is the cap rate.

Cap rate = 38,880/400,000 = 9.7%

I always shoot for 10 cap or better properties and this comes pretty close.  It’s very difficult to find 10 Cap investments in a seller’s market though.

Especially after the crash of 2008 (around 2010), I was able to pick some properties that supported my 10 cap.

In any case, I don’t even look for anything less than 8 Cap.  If you want to successfully house hack and create wealth, you will need to aim for a 10 cap property.  

The ideas is, so you can live free or almost free and then make your tenant pay for all the expenses.

Word of Caution: If you only tell this, your agent will likely show you a 10 Cap property. But that will be in a bad part of the town. You want to avoid it.

What we did here is pretty much what you would do to access the viability of a commercial real estate. The reason why I want you to do this is now you will think and act like a commercial lender or a sophisticated investor.

Cash flow projection

Now if it passed the cap rate test then it’s time to do a cash flow projection.

This is going to get complicated. You need to create multi-year cash flow projections in excel.

The reason I want you to do this is now you will introduce two important things.

You will rent one of the units – or part of the unit. And then you will be borrowing funds so you will have a debt repayment with interest.

Now you should build a spreadsheet model that will consider all these and make adjustments for changes year over year.

That is increase in rent (if your market so dictates), increase in taxes and other expenses.

Warning: I do not consider appreciation in this calculation, because that’s a vanity number and you never want to use it. Same with depreciation, I will just ignore.

Cash flow calculation is based on what you will get and what you will spend.  That’s it.

I will go so far to even access many big-ticket items, such as roof life, HVAC and hot water heater and such to see when it will all be due for replacement.

The maintenance 5% I allocated will not be a monthly expense, so you should religiously put it in a separate account and not touch it. That’s called reserves.

So when your roof leaks, you know what to do and where to get the funds from.

Since I had discretionary income, I always used that extra cash left over to pay the mortgage down.

I will possibly get an excel sheet for you at some point.  This will have formulas and will require a few cells to be filled by you. That’s it.  Check back – this page will be updated once I have the cash flow projection excel spreadsheet.

Case Study (Real One)

A true case study is worth looking at, so you know how it plays out in the real world.

More importantly, anyone can sell an idea or concept with fictitious numbers. A seemingly simple boring play can be made hot and sexy, by using unreasonable assumptions that you will never know to be true or not.

A real case study will show you the true numbers and as it happened in a transaction.

It’s not the best example but a real one.  I have had my friend who did other awesome deals, but that’s not mine, so I am those here just to paint a better picture.

Here we go…

The Find

It was 2012 when I found this property listed for $75,000.

What got my attention was it was bought for $150,000 (back in 2005) and it was in distress – as reflected in the sale price. More importantly, I notice the house was a Duplex.

I negotiated it down to $60,000, knowing I have at least $10,000 worth of fixup to be done.

House was not in great shape and was not in the best part of town either.

The Issues

It was a single family but some clever investor converted to a duplex. And did so in a terrible way.

It looked bad outside and inside and had deferred maintenance.

My goal was not to fix anything until it is broken.  However, I wanted to keep it to a level where the living standards were normal so I don’t get a city inspector knocking on the doors.

The Quick Math

But check this.

It was making $550 in rent per unit, for a total of 1100 gross rental. I did my quick calc – 1% of purchase value (of $60,000) works out to be $600.

I know that I could raise the rent by $10 – $20 a year and will land up at $600 a month a few short years. In fact, one unit alone got me to the 1% mark and I know this is a deal.

Other buyers and invested shied away from the property for the amount of work needed.  It badly needed a new roof and that would cost me $6000 when I replaced it.

Deal or Not Analysis

I started with my cap rate calculation as usual and came to know the additional expenses that I had to digest.

When the house was converted to a duplex, the investor only split the electric and saved money on the water conversion.

As a result, the landlord was paying that bill.

So in my mind, that was an item I have to live with, decreasing my NOI. Or…

…I could increase the rent and let them continue to use the water for free.  Or somehow charge it back to the tenants.

Here is how the Cap Rate calc turned out. All figures have been annualized

Gross rental – $13,200

Vacancies (5%) – $660 (Project figure)

Taxes – $790

Insurance- $575

Management (8%)- $1056

Maintenance (10%) – $1320 (Projected Figure)

Water – $1200

Miscellaneous – 500  (Project figure)

NOI   – $7099

Cap Rate = $7,099/$60,000 = 11.83%

Case study property P&L cashflow of rental property
Cash flow statement from a real case study property

I know right off the bad I was going to get rid of the water bill.  And I know I will be able to increase the rent $10 or $20 every year and increase my NOI.

I allocated 10% of the gross income towards maintenance just be safe and not fool myself into thinking the 5% will do.

Deal or No Deal?  

Of course it is.  This was so good a deal, I couldn’t pass on.  I bought it.

Financing the Deal

The real estate broker was my friend and he knew it was a good deal, so he wanted to fund $40,000 at 6.25% for 15 years and I took it.

I had to pay $343 per month in Principal and interest for 15 years. This property gave me well over  $590 in free cash flow to pay the $343 and I will be left with some money – $247 to be exact at the end of the month.

In fact, my free cash flow was north of $500 every month after I paid all real expenses and the debt service.  In your case, you will be managing and not use a management company, so you will make 8% more than what I did.

Post Close

Since all these numbers were real, I didn’t have much in the way of surprises.  But I could have done better.

First thing I did was to let the tenants leave as they were on a month to month.

Then I advertised (using the management co.) at a rental rate of $625 – that includes water and sewer.

I got it rented quickly.  I was surprised to see that inventory for rental at that price point was so little that I had so many of them lining up to take up the two spots available.

Since the water was on me, people were abusing it, which was a lesson for me and I had to live with it for a year until the lease ran out.

The following year I made the rent $590 for each of the units and made the tenants pay for water. It was put in the lease that the water bill that I get is a master bill and that each tenant is liable for half the bill.

And when both the units are occupied they pay half and if theirs is the only one occupied they pay 100% of it.

That changed the behavior a little and brought the bill lower. But I won big with this move.

I lost $70 in monthly rent or a $210 for the quarter. But since they were paying I was off the hook for water bill to the tune of $300.

Maintenance Miscalculation

While I improved the rent and got rid of the water bill, which increased my NOI substantially, I had other maintenance issues.

The Roof was a constant issue.  I fought with an old metal roof that had holes all over. I paid several $250 bills to patch it several times over the 4 years post-purchase.

I finally paid $6000 to change the whole roof.  I also had to spend $3000 to change the broken clay pipe that connected the sewer to the street.

There were other issues with plumbing, electric and appliance upgrade that I had to fix or replace.  All in all, I spent north of $20,000 over the 6 years I owned it.

I refinished the floor, fixed the framing that was awkward, refinished bathrooms, and replaced wood veneer paneling with drywall. And more…

I should have accounted for 25%  in maintenance and not 10%, which was my biggest mistake in this deal.

The property sold for $90,000 because of improvements and the appreciation that happened over the 6 years.  

I didn’t have to do anymore than changing the roof and sewer line.  I did just to show the property well, so it sells faster and for a higher price.

I had tax breaks from owning this (from expenses). Captured some capital gains. And tenants paid the $343 in mortgage and all the expenses while I owned it.

Overall I made money on this deal but not what I projected I would.

But the learning is this.  Look for what you are underestimating.  Try to see what you are assuming or underestimating.

Lesson Learned: Manage your downside and the upside will take care of itself.

Yo, Where is House Hacking Here?

Well, Good catch.  All along I told you I will show you a house hacking case study and I ended up showing an investment deal, right.

Now, If I wanted I could have moved into that house and occupied one part of the duplex. That just meant I would be getting $550 less in cash flow and that I have to come out of pocket.

As you saw earlier my cash flows after making real expenses my cashflow were over $500 each month.

If I had occupied one of the units, it just meant that I had to come up with somewhere between $100 to cover all the expenses.

In fact, had I lived there, I would have gotten rid of the management company and saved another $88 a month.

Or in other words, I would have lived there for free and had the tenant pay the bills.  Isn’t that house hacking?

House Hacking Ideas

Like I mentioned earlier a multifamily property is my first preference because that is the easiest for house hacking.  

However, that is just one of the many different ideas I am going to share.  

When I refer to multifamily I mean duplexes, triplexes, and fourplexes. Fourplex being the maximum value you can extract.

Anything above four units is considered commercial – like apartment buildings, so I would urge you to stay four and below.

In fact, in several parts of the country, it is hard to find fourplexes.  For that reason, we will explore other ideas here.

  • Fourplexes
  • Triplexes
  • Duplexes
  • Basement Units
  • Spare bedrooms (Airbnb) — This is big a Money Maker!
  • On-site cottage units
  • Outhouses
  • Garage converted units
  • Manufactured home (A.K.A mobile home or trailers) parked on your land
  • RV rentals on your lot, if it can support one
  • Garage as a storage space rental
  • Shed as a storage space rental
  • Park spaces rental (Driveway and garage)

Or you could get creative get house hacks and property flipping going on the same house every two years. Remember, the capital gains are not taxed.

I made this list for one and only one reason – to show the available options. Possibilities.

Do you think I can act on all those in my house – Never.  My zoning code wouldn’t allow half of those on the list.

But your area and jurisdiction will dictate what you can do and I am sure you can apply a few hack ideas to increase the cash flow.

I am so confident that, regardless of where you are from, you will be able to do two items from this list to earn an extra income.  Legally, that is.

In any case, use caution when house hacking.  Always check your local code to see what’s legally allowed and what’s not before renting.

Let the creative juices flowing and see what you can do with the extra space you never thought would be useful.

Raising Financing for a House Hacking Investment

VA, USDA, and others

This is where you should start.  You should try options such as VA or USDA loans.  Some of them are zero % down loans.

This is the best you can get. And you should take advantage of this loan and use the maximum allowable loan amount to buy the property.

But not all can qualify and it might have stricter guidelines.

FHA Loans

If you are a first time home buyer you have a lot of options to buy something with just 3.5% using FHA.  

Even if you are not a first time home buyer, as long as you don’t have an FHA Loan you may be eligible. Again, check FHA as they keep changing the rules.

But otherwise don’t worry much.

You normally need 15% to 20% down payment and the rest can be financed easily.

Now, this is the best part. It’s commercial if you think about it.  You are going to rent a multifamily property and collect rent.

But just because you are going to live there, it suddenly becomes residential and you are governed by the residential property rule.

That is in your favor.

Are you think, it isn’t big deal right?  No. It is.

You will never be able to buy commercial property or even a rental property for less than 30% down.  Some local banks allow 25%, that’s when they know the market and you have a strong relationship with the banker.

If you use FHA loan correctly, you can find a substantial investment for only 3.5%.  If your math is right, you will live for free and your tenant will pay your mortgage off.

Let me put this in perspective.

You can purchase a $600,000 triplex property for only 21,000 down.  And at 4% interest rate environment, we have now, that is a $2,865 in monthly payment for the mortgage.

Even with all your Taxes, insurance, and other maintenance expenses, you only need $4000 a month to break even.  

If you have a fourplex and rent three units, you will only have to bring in $1400 in rent from each of those units.

Mind you, this is 96.5% levered and still, you don’t have to come up with anything every month.

Conventional (Conforming) Loans

If nothing works out, then be frugal for a while till you save enough for a 20% down payment.  Then you can go to any bank or lender and get a regular conventional loan.

You could tap into your home equity if you already have a house.  Setting up HELOC is always good, so you can access quick capital for down payments.

But just don’t tell your banker this is why you need to setup HELOC though.

Fix, Flip and Repeat

Want to be an active investor. Then do this.

Find a distress property, that you can go in and fix – preferably you do the fix yourself.  Then you can refinance (after some seasoning time) and pull the down payment out or sell it and take the equity out that way.

After you do a smaller deal or two you will have enough for downpayment to go house hacking bigger multi-unit properties.

Well, these are not the only ways you can raise financing, but some I thought you should know.

FHA 203K Renovation Loan

This is an awesome product for house hacks.  Especially when you find a neglected multifamily property, this is going to be an awesome product.

With this, you will take a loan to buy the property and fix up (or upgrade) so you repay back over several decades while you start to capture the cash flow instantly.

9 Foolproof Steps for Your First House Hacking Property

Step 1: Know the house hack concept well

Since you’ve come this far and read the steps to take serious action, I know you are committed.

This is not the time to put this aside to go look at other investment ideas or do something else.

Spend some time to go over this and know more about this concept. Basically, immerse yourself to learn more and understand the concept well.

Step 2: Decide whether it is for you or not

Be honest with yourself. If you are kind of the person who wants to build an image and want your friends to not to perceive you as frugal, then think again.

This is not the only strategy, there are plenty of other ways you can build wealth.  With or without real estate. However, this is by far the easiest.

Decide if it’s for you or not. If not, no worries, let’s think about other ways. But making that decision is very important.

I don’t want you do spend time and energy and back out half the way.

But if you think house hacking is for you, then be determined till the end to make this a reality.

Step 3: Financial Readiness

Now you have done with the soul-searching process, it is time to get into action.

See what you have saved so far.  Or want you can really pull out from all the resources you have access to.

This also means you get to know mortgage banker or mortgage broker. Line up the team that will help you execute on the plan.

If you are in a seller’s market you will be competing with other seasoned investors. You should be ready with a pre-approval letter.  A pre-qualification is my second option though.

A pre-approval not only shows the seller you have the ability but also conveys to the seller and all other stakeholders you are prepared and serious.

Step 4: Market Analysis

While I have the market analysis after financing, you can do both at the same time. You will tweak your search criteria based on feedback from doing the financing pre-requisites.

Knowing your market is paramount.  What will set you apart from the uninformed is this preparation.

Once you know your local market (or target market) like the back of your hand, you will know to spot a deal without doing much of the calculation.

It’s ideal to pick your local market but only if it satisfies a few conditions.

You want a good, robust local economy. Decent population growth, job growth etc.

This is the time you need to find a good (I mean really good) real estate agent who understands your strategy. Someone who genuinely gets house hacking.

This is also the best time to look for a rental market. Check how strong the market is and what would the market pay.

Tip: When I started, I had ads in craigslist to see how many inquiries I get to see if the market is viable.

Step 5: Deal Pipeline

This is where the rubber meets the road – so to speak.

You must use all the information you acquire and the knowledge you gained to execute on.

But first, you need a pipeline of deals to evaluate. The pipeline is a marketing and sales term you should be familiar with.

Nothing will show up in your inbox. Which means you need to set something up so you are sent all those potential investment ideas.

Also, you must actively search every day to see what’s out there.

Your real estate agent can set you up with MLS, so you can get the daily or weekly feed of listed properties.

But you should do other things to increase your odds.

Why? Because everyone and their grandmother are looking at MLS. That is competitive.

Here are the other things you can do to feed the pipeline:

Driving for Dollars

Look around every time you drive around your neighborhood. Chances are you see a “For sale by owner” sign.  Or an overgrown neglected property that you can pursue.

Craigslist (and other classified) Search

These are mostly duds. And real estate agents advertising their MLS listing here. However, every now and then you will find a seriously motivated seller with a deal.

Network and Ask Around

Be connected with people and ask if they know any property for sale. This is good because anything thinking of selling but was lethargic to find a listing agent to list will talk to you.

Direct Mail Campaign

This is a golden idea. Not many reach potential seller via direct mail. If you do some groundwork and selectively reach out, you will find great success.

Say you only look for out of state owners (by having a different address in tax records) and reach out via letter is a great idea.

Step 6: Crunch the Numbers (a lot of it)

Like I mentioned before, finding a property is a deal or not is super important.

The only way you will be able to know that is by running the numbers. The Number is not a be all end all with investing. However, the number is a big part of it.

You need your market knowledge, common sense and numbers combined to make an investment that will build wealth, instead of draining your energy.

Since this is going to be the first property, likely you are unsure about a lot of things.  You need to find so many properties and start to analyze them. Then you’ll start to see a pattern emerging.

You will come to know for yourself if something is good, bad or ugly.

Again if you’re unsure, being conservative and still making sure if the deal works out is the key.

A word of caution: Do not believe what the seller or the agent tells you. They all want to offload the property and will inflate revenue and ignore or downplay the expenses.

Step 7: Put the Deal Together

Well, you have come this far.  This is not the time to chicken out.

Of the properties you looked at you will ideally find something interesting. Something that will catch your attention.  A property that will not let you sleep at night.

Fine. If you find that property, I urge you to check and recheck. Visit the house a second or the third time.

If the property needs some fix-ups, then get a contractor along and have him look and do an estimation for you.

With all those information redo the numbers and the spreadsheet model to make sure your deal is solid.

Put in an offer and go for it.

A lot of people I have seen will just not pull the trigger. I totally understand. I was like that for a while.

But when you know the numbers are right (for the most part) and that you have evaluated the downside, you should pull the trigger.

Step 8: Close Your First House Hack Property

The process of closing is not difficult at all.  Your (buyer’s) agent will guide you through the process.

You will be introduced to a title company that will do everything for you. You just have to sign and wire the money in. Or get a bankers check to the closing table.

The lending institution will wire the money and give all the instructions to the closing agent.

This is just paperwork. You are paying the title company to do all these admin work and record it with the county clerk’s office.

You wouldn’t realize what happened but you will close and get the key.

On the day of closing right before you go to the title company, have your agent take you to the property and make sure to do a pre-close inspection.

Your job is to confirm that the property what you are getting is the same shape when you negotiated and put the offer on. This is important.

Congrats! You just bought your first House Hacking property. Yay!

Step 9: Post Close Management

Once you get the keys to the property, you should start working on optimizing your investment.

Your goal is to increase the NOI while reducing risk. That’s all.

I can write a complete post on this subject of increasing revenue and decreasing expenses.  That’s not the goal of this post, so, that’s for another day.

Isn’t that simple? I told it was going to be so.  It just takes someone to go through the process and do it.

Final Thoughts

Building wealth using House hacking can be a totally life changing experience.  It is, in fact, an unconventional way to start in real estate.

In any case, the journey is not going to be a traditional one and some might find it uncomfortable, as it might not fit the norm.

This is not the beaten path, so you will have to go alone at times.  What I mean by that is none of your friends might be doing this and you will be the only one at the party talking about house hacking.

Is house hacking for you? You can only answer that. In any case, it will be rewarding and will set you financially free several years before your friends do.

So why wait, there are deals out there. Go get it.

Leave a Comment