My First House Hack

If you start with house hacking as a young adult instead of the normal housing options(renting or buying a house), you can build much more wealth over the years.

Early in my 20s as a recent college grad, I was living cheap and flipping houses. I actually lived in the spare bedroom of my friend and business partner’s house. My bed was in the corner surrounded by storage boxes! It was inexpensive housing, but I wanted a place of my own. And because I enjoyed paying little to nothing for housing, a house hack was a perfect next choice.

A friend told me about a vacant, foreclosed fourplex building in my small college town that needed A LOT of fixing up. I can just imagine the foreclosing banker showing up with a nice car and fancy shoes to see “Merry Christmas” spray painted across the front! Ha! I doubt he even made it out of his car.

Before you think all house hacks are this nasty, keep in mind that this was ultra ugly. My motto in real estate is the uglier the better (because you get it cheaper). And this was clearly the worst property in a decent neighborhood close to the campus of Clemson University. But there are many house hack opportunities without this much work. The choice is yours. And don’t worry. I didn’t move into that nastiness. We fixed it up, and pretty soon it was a warm, cozy home.

After a few months and some help from repair contractors, my house hacking home was ready. I moved into unit #2, and I rented the other 3 units out to tenants who loved the upgrades.

The upgrades included four new central heat and air units, replacement windows, exterior paint, landscaping, a community garden, dishwashers, paint, new lighting/fans, back decks, and new floor coverings. Here are a few of the pictures after repairs were finished (you’ll notice that my girlfriend at the time, now my wife, loved bright colors).

Turning the building around was a lot of fun. And I also enjoyed living there. In fact, I liked it so much that this was the first home that my wife and I shared for several years after getting married.But while the feel-good story is important, you and I both also care about the numbers. So, let’s look at the bottom line.

The Final Numbers

I bought the fourplex at a good price ($70,000) using a combination of a local bank loan and private financing. I then spent about $45,000 (yes, I told you it was nasty) rehabbing and upgrading the property.

Once I had 3 of the 4 units rented out, I moved into the 4th unit, lived there for 6 months, and applied for a refinance. Because the value was now much higher (about $155,000), I was able to borrow $120,000 and pull out 100% of my invested money. This particular strategy is known in online real estate circles as the BRRRR Strategy (Buy, Rehab, Rent, Refinance, Repeat). But I’ll talk about that more in the financing section of this guide.e.

For now, let me show you the cash flow numbers after my fourplex was remodeled, occupied, and refinanced with a $120,000, 6.5%, 30-year mortgage.

$1,200 Monthly Rental Income

30 2.5% Vacancy Reserve

162 Monthly Property Taxes

50 Monthly Property Insurance

100 Monthly Maintenance

0 Common Utilities

5 Monthly Business License

Net Operating Income

Monthly Priinciple & Interest

Monthly Positive Cash Flow

I was basically getting PAID to live in my new home! Beautiful! And because of the refinance, I had no cash out of my pocket.

Not all deals are this good. I’ll admit this was a stand-up triple, to use a baseball analogy. But even if your house hack reduced your payment from $1,200 to $600 per month, would that not be a win? I think so. But you’ll have to decide for yourself what a good deal means.

To learn more about this House Hack, visit my website CoachCarson.com and join me at the May 12th MAREI Meeting. I will be sharing my story of how I got started and retired in my 30's and how you can do it too. (Grab the Details at www.MAREI.org)