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00:01:34.640 | Hello, and welcome to another episode of All The Hacks, a show about upgrading

00:01:44.400 | your life, money, and travel all while spending less and saving more.

00:01:49.200 | I'm Chris Hutchins, and I'm excited to have you on my journey to find all the

00:01:53.520 | hacks to optimize my life.

00:01:56.040 | With housing being one of our largest expenses, I thought it would be amazing

00:01:59.880 | to do an episode about reducing your cost of living through house hacking,

00:02:03.480 | something I did for almost a decade that helped me save over $100,000.

00:02:08.880 | And who better to have on than Andrew Kerr, a seasoned real estate investor and

00:02:14.880 | the founder of Financial Independence by Real Estate Investing, or FiByRia.com.

00:02:19.600 | He's also worked for years in residential and small commercial banking, but most

00:02:24.720 | relevant to our conversation is that he's the host of the House Hacking Podcast.

00:02:28.880 | In our conversation, we'll talk about the six different types of house hacks you

00:02:33.400 | can use to start saving money, roommate.

00:02:35.640 | We'll also talk about some of his tips for buying and selling properties,

00:02:39.600 | including in a hot market, and how to start thinking about real estate as

00:02:43.280 | a way to build your wealth.

00:02:44.400 | It's going to be a great episode.

00:02:46.080 | So let's jump in.

00:02:47.000 | After I remind you.

00:02:48.560 | Chris Hutchins works at Wealthfront.

00:02:50.560 | All opinions expressed by Chris and his guests are solely their own opinions

00:02:54.520 | and do not reflect the opinion of Wealthfront.

00:02:56.560 | This podcast is for informational purposes only and should not be relied

00:03:00.280 | upon for investment decisions.

00:03:01.720 | Andrew, thanks for being here.

00:03:05.360 | Awesome, man.

00:03:06.560 | Chris, I'm so excited.

00:03:07.920 | We finally got the time to connect.

00:03:09.880 | Thanks for having me on.

00:03:10.800 | Yeah, I am excited.

00:03:12.760 | And I just want to dive in really quick.

00:03:14.680 | I don't know if everyone listening to this knows what house hacking is.

00:03:18.400 | So I just want to start off by hearing you explain in your

00:03:21.680 | words, what house hacking is.

00:03:23.000 | Awesome.

00:03:23.680 | Yeah, I like the fact that you said my words, because it's sort of changed

00:03:26.840 | over the world and the way media has talked about house hacking, it's

00:03:31.160 | sometimes only talked about one way.

00:03:33.320 | To me, house hacking is doing anything creative with your housing options

00:03:39.960 | to help reduce your housing costs.

00:03:42.160 | You know, the average person spends 30% of their income on housing.

00:03:46.240 | So if you can take a housing choice, pick how you're going to live to

00:03:49.920 | reduce any of that or all of that cost, to me, that is house hacking.

00:03:54.920 | And whenever anyone says, you know, the goal is to cut all these costs, I feel

00:04:00.080 | like it often comes with a connotation of, you know, living in a crappy,

00:04:03.720 | rundown apartment, this isn't that though, right?

00:04:06.960 | So that is one option.

00:04:09.120 | And that's where, you know, a lot of the articles that are online are doing

00:04:13.800 | roommates or room rental style house hacking, where it's the young person in

00:04:17.960 | their twenties that's getting and living in a big house and having four or five

00:04:22.040 | roommates.

00:04:22.720 | And, you know, to me, that is definitely a big sacrifice.

00:04:26.360 | I could never convince my wife to do that, but house hacking can be pretty

00:04:30.120 | luxurious, dependent on the style that you pick and where you're living.

00:04:33.640 | So like me and my wife, we're in the Bywater here in New Orleans.

00:04:37.360 | It's a historic district.

00:04:38.840 | We're in a historic home that runs about $600,000 once we're finishing out our

00:04:44.280 | renovations, and we've got a tenant on the other side and we live in our side

00:04:48.720 | and they cover almost all of our housing costs.

00:04:51.560 | So, you know, we're living in a amazing neighborhood.

00:04:54.880 | We can walk to everything.

00:04:56.280 | We rarely drive our car and it's just a beautiful building and it costs us

00:05:01.680 | almost nothing to live here.

00:05:02.800 | So there's a lot of different ways to do house hacking, but most people prefer not

00:05:07.360 | that like dingy, dirty, a million roommate style of house hacking.

00:05:11.320 | Yep. And these are, you said on the other side, are they in your sharing

00:05:15.680 | living space or is this completely separate?

00:05:17.760 | No. So this is what I'm doing is what we sort of call a small multifamily house

00:05:22.840 | hack. So it's where you buy a duplex, a triplex or a fourplex.

00:05:26.320 | So, you know, in New Orleans, it was traditional where a family would buy a

00:05:30.960 | piece of land, build a building and make it into a two unit or a duplex.

00:05:35.320 | So they've got their own entrance, own exit.

00:05:38.120 | We even fenced off the backyard.

00:05:40.360 | You know, we share a common wall all the way down the middle.

00:05:43.640 | But outside of that, you know, we only see them if they're hanging out on the front

00:05:48.400 | porch and we're hanging out on the front porch.

00:05:50.240 | Wow. And so that's one kind of house hacking.

00:05:53.360 | The roommate style, you mentioned it, anyone could buy a place and get a bunch of

00:05:57.120 | roommates and charge rent.

00:05:58.520 | Are there some other categories or is there a way you break it down?

00:06:02.440 | Yeah. So I sort of look at the six styles.

00:06:04.520 | There's that room rental, the roommate style.

00:06:06.680 | There's the small multifamily where you're buying the two unit, three unit or four

00:06:10.600 | unit. Then you've got the income suite.

00:06:13.440 | So maybe you've got that walk up attic or that unfinished walk out

00:06:18.000 | basement and you convert that into an income suite.

00:06:21.040 | So, you know, for folks that are maybe more in their 30s, they might remember a show.

00:06:25.440 | I think it was like HDTV.

00:06:27.080 | It was called Income Suite.

00:06:28.640 | And that's all they did was take people's basement and convert it into an income

00:06:31.880 | suite. And that way there's no shared space.

00:06:34.880 | The other way is called the ADU house hack.

00:06:37.640 | So an ADU is a term for an accessory dwelling unit.

00:06:41.880 | It's essentially an outbuilding on your land.

00:06:44.200 | It's a sort of zoning or building code definition.

00:06:47.360 | But that's where a lot of folks will, especially in California, where they've got

00:06:51.120 | that pool house, guest house or garage and convert it into an apartment.

00:06:55.600 | And now you've got sort of your main building and a small building on the same lot.

00:06:59.640 | Then the next is a work provided house hacking where you specifically choose a career

00:07:04.640 | path or if you want to change careers, pick a career path where housing is provided.

00:07:09.120 | So that could be, you know, teaching abroad, careers in the military.

00:07:12.760 | There's a lot of sort of upper level white collar jobs where they're going to post

00:07:17.680 | you somewhere for three months, six months, a year, and they'll provide corporate

00:07:21.320 | housing. And then the last option is a live in flip and a slow

00:07:26.400 | flip. So most folks are familiar with flipping a house.

00:07:29.000 | You know, you go and you fix it up as quick as you can.

00:07:31.440 | You sell it. But the idea with the slow flip is you live in it for at least a year,

00:07:35.800 | ideally two years.

00:07:37.320 | That way, as you fix it up, it drastically appreciates in value.

00:07:42.000 | And then when you go to sell it because you lived it in for two years, you don't have

00:07:46.360 | to pay taxes on any gain up to two hundred fifty thousand dollars if you're single

00:07:51.240 | or half a million if you're married.

00:07:53.080 | So whereas a normal flipper, they'll flip a house and they could be paying 30, 40

00:07:57.480 | percent in taxes on that money they made on the flip.

00:08:00.760 | So those are the sort of six main styles.

00:08:02.800 | You can combine them and there's a lot of other things you can do.

00:08:05.360 | But those are the sort of six ways.

00:08:07.640 | And do they all require buying a property or is there any type of rental based house

00:08:12.560 | acting?

00:08:13.120 | Yeah. So that's actually a question I get a lot.

00:08:15.080 | Folks will say, look, hey, I don't know what I can do yet.

00:08:17.640 | My credit's not quite right.

00:08:18.800 | I need to save money for a down payment.

00:08:20.520 | Well, go rent a big house, get a big flat lease and put the lease in your name only.

00:08:26.240 | And then you rent out the rooms to all your friends.

00:08:29.440 | Or maybe you can find that house that does have that walkout basement and you can close

00:08:34.200 | it off and then separate it and put it on Airbnb or rent it out to travel nurses or

00:08:38.800 | put in a long term tenant.

00:08:40.240 | Just the one thing you want to be careful of if you're renting a space is just look

00:08:44.600 | through the lease and make sure it's OK to sublease parts of the property or to do

00:08:49.080 | things like Airbnb in the portions of the property you're not using.

00:08:53.080 | Have you found that if leases don't allow that, are landlords ever willing to

00:08:58.240 | negotiate here or if it's not allowed, kind of move on?

00:09:01.600 | It depends on the landlord.

00:09:03.600 | Now, here's the thing, being a landlord myself, and I know you've been one.

00:09:07.240 | If someone comes to me and says, hey, I'm going to pack more people into the property,

00:09:11.240 | my mind automatically goes to, OK, that's more maintenance costs.

00:09:14.720 | That's more wear and tear on the property.

00:09:17.080 | But now if they say, hey, we've got this unfinished basement or this finished

00:09:21.240 | basement and I'm going to rent it out long term or I'm going to put travel nurses in

00:09:26.520 | there for three months at a time, would that be OK?

00:09:30.200 | And by the way, I'll throw you an extra 100 bucks a month or 200 bucks a month.

00:09:33.920 | I'm going to say, hey, great, I'll take that extra increased rent.

00:09:37.760 | And I think if you have the conversation that way with the landlord of, hey, they're

00:09:41.800 | all being screened, they're going through a process, they're paying their own security

00:09:46.200 | deposit, I'm still going to be responsible for everything.

00:09:49.520 | I think a landlord, if you have a decent conversation with them and they see the

00:09:53.320 | benefit to them of, hey, there's more money coming into that property, so there's a

00:09:58.320 | better chance all continually getting paid.

00:10:00.760 | And if there's a little more upside for me, that's great.

00:10:03.520 | I mean, I have a good sort of we'll call him an Internet friend.

00:10:06.520 | He was in San Diego.

00:10:08.040 | His housing allowance from the military was three thousand dollars a month.

00:10:12.680 | So he rented a nice big house that had a basement and he put that basement on Airbnb.

00:10:18.800 | So not only was his rent about three thousand dollars, which took up his whole

00:10:23.240 | housing allowance, he was bringing in another fifteen hundred to three grand a

00:10:27.040 | month from that Airbnb place.

00:10:28.720 | So not only was he living for free, but then he was bringing in twenty five, thirty

00:10:33.880 | grand a year and he worked it out with his landlord and his landlord didn't care.

00:10:38.120 | Wow, that's amazing.

00:10:40.200 | OK, so you could do it if you're renting.

00:10:42.080 | But I know a lot of these opportunities are much better when you own the home.

00:10:46.240 | If someone listening hasn't ever purchased a home, are there specific kind of

00:10:50.320 | requirements or prereqs that come to buying properties for these purposes that

00:10:54.280 | might change for, you know, just a traditional look for your first home?

00:10:58.880 | Or are they similar?

00:10:59.760 | Very similar.

00:11:01.000 | And that's the great thing about house hacking is because you're buying the

00:11:04.160 | property to live in it, you now qualify for a owner occupied loan.

00:11:09.880 | So just if I were to go out and buy a house to just normally live in, I can get

00:11:15.240 | those same loan programs if I were going to house hack a property.

00:11:19.000 | Now, in some cases, there's a little extra qualification where they might ask to,

00:11:25.120 | you know, have you put down five percent instead of three and a half percent.

00:11:29.160 | But most loan programs out there.

00:11:31.960 | So if you're a veteran, there's the VA loan program.

00:11:34.600 | You can buy a small multifamily property, a property with a walkout basement,

00:11:39.960 | exactly the same you would if you just bought a traditional single family home.

00:11:44.720 | Same thing for an FHA loan.

00:11:46.240 | You can buy a house three and a half percent down.

00:11:49.240 | You know, so for a $300,000 home, you're looking at $11,000 and buy a two unit or

00:11:55.840 | buy that house with that unfinished basement and then use some of your

00:11:58.880 | savings to finish that basement.

00:12:00.880 | So that's the great thing with house hacking is you get to use those same

00:12:04.640 | owner occupied loans that the average homeowner's using versus if I were to go

00:12:09.200 | buy it as a true investment property, I got to put down 20 percent.

00:12:12.480 | So, you know, in that $300,000 home, I got to come up with 60 grand to buy that,

00:12:17.280 | say, duplex, where if you're house hacking it, you know, you're at $10,500, $11,000.

00:12:21.720 | Wow.

00:12:22.800 | And so VA loans, obviously for people who've served in the military,

00:12:27.400 | who's an FHA loan for?

00:12:29.360 | Pretty much anyone.

00:12:30.840 | They want you to be a first time home buyer or have not owned a home or not

00:12:36.680 | had an FHA loan in the past.

00:12:39.080 | So it's a great option where if you're just going to go out and buy a property,

00:12:42.960 | use an FHA loan, low credit score requirement, low down payment requirement.

00:12:48.800 | You don't have to have perfect credit.

00:12:50.720 | And then what you get approved for is just based on your income.

00:12:54.280 | Wow.

00:12:55.360 | And you, and you said you only have to put down three and a half percent.

00:12:58.520 | Yep.

00:12:59.200 | Three and a half percent.

00:13:00.400 | And then one of the really cool things when you go to buy a home and you can do

00:13:04.080 | this, if you're just buying it yourself, is you can negotiate with the seller to

00:13:07.120 | give you credits for closing costs.

00:13:09.240 | So a lot of the times with those FHA loan programs, you can get credits, you can

00:13:14.280 | get a down payment assistant grant to help reduce that even lower.

00:13:17.880 | Is there a limit on FHA loans?

00:13:20.680 | Yes, there is.

00:13:21.480 | Yeah.

00:13:21.760 | Great question.

00:13:22.400 | So the FHA loan limit is going to be based off of where you live and based off

00:13:27.080 | of how many units in the property.

00:13:28.840 | So one thing to touch on, you know, I say small multifamily, that's up to four

00:13:34.040 | units, soon as a property has five units or more in it, it's considered commercial.

00:13:39.000 | So that's why you want to stick at those four units.

00:13:41.280 | An FHA loan program will have a max loan limit for one unit, it increases for two

00:13:48.160 | unit and goes up for three and goes up for four.

00:13:51.120 | So I think when I was looking a couple months back, buying a four unit there in

00:13:55.200 | Los Angeles, it was almost like a little over a million dollars was the FHA loan

00:13:59.360 | limit.

00:13:59.720 | Now, obviously that's a higher priced part of the country versus say here in

00:14:03.320 | Louisiana where I'm at in New Orleans, the FHA loan limit is not going to be as

00:14:07.800 | high.

00:14:08.120 | Or if you're in, you know, a very rural part of Iowa, the loan limit is going to

00:14:13.320 | be a bit lower.

00:14:14.560 | Yeah.

00:14:15.520 | Now, even if you're not eligible for FHA loan, you can still buy these as kind of

00:14:19.600 | traditional conventional mortgages and get a lot of the benefits of owning it by

00:14:24.240 | living in it, like property tax deduction and mortgage interest deduction and those

00:14:28.520 | things.

00:14:28.800 | Yeah.

00:14:29.280 | So there's always like what I'd say the four pillars of building wealth and real

00:14:32.600 | estate, right?

00:14:33.160 | So there's going to be appreciation.

00:14:35.400 | So over the long term, you know, if you look at the Case-Shiller Index, which

00:14:39.600 | looks at real estate prices over the past, I think almost a hundred years, it's

00:14:44.120 | appreciated on average 3% a year.

00:14:46.240 | There'll be dips, pullbacks, recessions, but you'll, you'll have that consistent

00:14:50.320 | appreciation over the longterm.

00:14:51.960 | You've got your debt pay down.

00:14:53.760 | So you've got a loan and you'll be generating income from some part of the

00:14:57.040 | property.

00:14:57.640 | You get your tax benefits as well from your deduction.

00:15:02.040 | And then, you know, you start to build some experience as a landlord as well.

00:15:06.480 | And with that comes some potential cashflow where if you're getting monthly

00:15:10.960 | cashflow as well, on top of all the sort of maintenance and debt required to pay

00:15:16.760 | for the property.

00:15:17.520 | So clearly you've put a lot of frameworks around this.

00:15:20.720 | I mentioned earlier that, you know, you have a whole podcast about this.

00:15:23.800 | How did you get started in house hacking and make this kind of your brand and

00:15:28.360 | passion?

00:15:28.760 | Yeah.

00:15:29.480 | So it was really by accident.

00:15:31.080 | So I'm 20 years old at this time, back in 2002.

00:15:35.000 | So starting to age myself just a little bit, but I was actually in the mortgage

00:15:39.000 | industry.

00:15:39.440 | I was doing really well.

00:15:40.600 | I started at 19, started doing sales.

00:15:43.120 | I think that year I was making a little over a hundred grand.

00:15:46.280 | I was getting ready to go rent a place with my buddy.

00:15:48.480 | And we were looking at places and it's like two bedrooms, decent places, you

00:15:52.520 | know, a thousand bucks a month.

00:15:53.760 | And then I was like, wait, a thousand dollars a month, I'm helping people go

00:15:59.520 | through loan applications and they're buying places and their payments were,

00:16:04.080 | you know, with taxes and insurance, eight, 900 bucks a month.

00:16:08.720 | I was like, this doesn't make sense.

00:16:09.960 | Like I'm going to go buy a place and then my buddy can rent a room from me.

00:16:12.920 | And that's how it sort of all started where I started with house hacking and

00:16:17.080 | then started growing a real estate portfolio and then got away from house

00:16:22.160 | hacking.

00:16:22.520 | But then when me and my wife got really serious and started building our life

00:16:26.440 | together, we went back to house hacking.

00:16:28.320 | You know, she had never owned a property.

00:16:30.080 | We had just moved to New Orleans.

00:16:31.880 | And I said, you know, we really love to travel.

00:16:34.680 | We're paying at that time, I think we're paying like $1,500 a month of rent.

00:16:38.080 | And I was like, you know, that's 20 grand a year.

00:16:39.800 | Why don't we do a house hack?

00:16:41.240 | We each put in some money and find a really cool property that lets us live

00:16:45.240 | for free.

00:16:45.920 | And then that 20 grand that we're saving, we can use for travel.

00:16:49.640 | And that just sold her on it.

00:16:51.080 | We ended up having this really cool property in New Orleans.

00:16:54.760 | We converted it from this whole corner store to three high-end

00:16:58.080 | apartments with a ADU out back.

00:17:00.400 | We lived in this two bedroom, one bathroom.

00:17:03.320 | And folks, let me tell you this.

00:17:04.720 | My wife wasn't going to live in a dump by any means.

00:17:07.800 | I mean, we had like this 60 gallon soaker tub with the jacuzzi jets.

00:17:12.160 | She had that clay fire house, farm sink thing that she really wanted.

00:17:17.120 | You know, 11 foot ceilings, hardwood floors.

00:17:20.240 | And it was perfect for us at two bedrooms and one bathroom and saving

00:17:24.120 | 20 grand a year.

00:17:25.160 | And that property also gave us an extra eight to 10 grand a year in profit on top

00:17:31.040 | of paying all the expenses for the property because we had so many units in it.

00:17:35.320 | So it worked out phenomenal for us.

00:17:37.720 | And that convinced her to do my fourth house hack, which we went from that two

00:17:42.160 | bedroom, one bathroom to now, you know, we're going to be in a three bedroom,

00:17:46.360 | three bathroom on our side.

00:17:48.040 | So, you know, that, that was sort of how I started, went on a little bit of a

00:17:51.920 | tangent. We got away from a different point of life and then we started to get

00:17:55.200 | back to it just to say like, "Hey, you know, she had her finances.

00:17:58.960 | I had mine.

00:17:59.800 | Let's start building our financial life together."

00:18:02.160 | And house hacking is a great way to do it.

00:18:04.200 | And again, you know, we didn't need a fancy car.

00:18:07.600 | We'd rather just go travel and put our money towards that.

00:18:10.600 | Yeah, it's funny.

00:18:11.280 | So I didn't know house hacking was a thing until I similarly found out that,

00:18:16.160 | "Oh, I guess I was doing it."

00:18:17.400 | So our story is a little similar.

00:18:20.840 | We were looking for a place in San Francisco.

00:18:23.320 | And one of the reasons I often tell people not to buy a home is that, you

00:18:28.360 | know, the cost of buying and selling a home, there's real estate commissions and

00:18:32.520 | closing costs and everything.

00:18:33.680 | And so the kind of general rule of thumb is if you're not going to be somewhere

00:18:36.640 | for five years, you probably won't recoup all those costs.

00:18:39.480 | And when you're young, you know, you think, "Well, I need a place that I'll be

00:18:43.480 | able to live in for five years."

00:18:45.200 | So you're kind of incentivized to buy the place that you think you would need five

00:18:49.360 | years from now, which might not be a one-bedroom.

00:18:51.440 | It might be a two-bedroom or a three-bedroom.

00:18:53.240 | And I've always said, you know, you don't want to prepay for all that space.

00:18:57.480 | So if in four years you need a three-bedroom place, but right now you

00:19:02.520 | don't, if you buy, you're going to end up paying for three bedrooms for a few

00:19:07.080 | years that you don't need it.

00:19:08.320 | And so when you compare it to renting, it should be fair to compare it to, "Well,

00:19:12.320 | for two years, I'll rent a one-bedroom.

00:19:13.920 | And then two years, I'll rent a two-bedroom.

00:19:15.520 | And then I'll switch."

00:19:16.920 | And so I often think until you're at a place where the kind of house you're

00:19:21.200 | renting is the same kind of size and style of what you'd need five years from

00:19:25.800 | now, that's a challenge.

00:19:27.560 | And, but we're still looking, we're still, you know, taking, touring some open

00:19:31.080 | houses.

00:19:31.600 | And this was probably around 2010, 2011.

00:19:34.600 | And we saw this house and it was three bedrooms, but on the ground floor, it was

00:19:40.720 | kind of a San Francisco style, walk up, enter on the second floor.

00:19:43.840 | But the ground floor had its own entrance.

00:19:45.960 | And we thought, "Oh my gosh.

00:19:47.080 | Well, one day we might want three bedrooms, but we can't afford a home that has

00:19:52.440 | three bedrooms now.

00:19:53.600 | But if we bought one and then immediately started renting it out, we could use that

00:19:57.880 | rental income to offset the cost of buying a house that was bigger than we needed.

00:20:03.040 | And then at some point in the future, if we want a third bedroom, instead of

00:20:07.200 | selling a two-bedroom house and buying a three-bedroom house, we just stop renting

00:20:10.840 | out our, as you call it, income suite.

00:20:13.640 | And I think something that maybe people don't realize, and this is maybe much more

00:20:18.840 | true in, you know, urban areas with lots of places to eat nearby, but you don't need a

00:20:25.960 | full kitchen suite to have an income suite.

00:20:28.880 | We turned a bedroom with its own en suite bathroom into a rental and rented it for

00:20:34.680 | almost seven, eight years.

00:20:36.720 | And there wasn't a kitchen in there.

00:20:38.280 | And people knew that.

00:20:39.360 | Some people worked at Google and got their meals paid for.

00:20:42.240 | Some people just went out to a coffee shop and some people use a microwave, a

00:20:45.960 | hot plate and a mini fridge, but we were able to just turn a regular bedroom with

00:20:49.920 | its own entrance into a rental unit.

00:20:52.360 | And that effectively covered our mortgage payment for almost seven years.

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00:24:04.320 | You know, I think you mentioned a good point.

00:24:06.280 | Like people don't always need a lot of stuff or need that full kitchen.

00:24:10.920 | You know, the way I always looked at it is there's three types of tenants.

00:24:14.480 | You've got your short-term tenant, you know, folks that are

00:24:16.680 | going to stay less than 30 days.

00:24:18.640 | When people hear short-term tenants or short-term rentals, they

00:24:21.720 | think of like Airbnb, VRBO.

00:24:23.640 | So a lot of times if you've got that income space that could become an income

00:24:27.840 | suite and it doesn't have a full kitchen or really any kitchen, I mean, you can

00:24:32.000 | throw in a microwave and like a kettle for some coffee or French press or

00:24:35.560 | a Keurig or something like that.

00:24:36.920 | Those folks, most of the time they're in a city, they want to go out and eat.

00:24:40.320 | And then, you know, the next step up is a midterm tenant.

00:24:43.600 | You know, those are folks that usually stay 30 days to six months.

00:24:47.400 | These are, you know, traveling corporate executives, they need a furnished place.

00:24:51.480 | They don't want to be in a hotel for three months or your traveling nurse.

00:24:55.000 | You know, we've rented to a lot of traveling nurses.

00:24:57.920 | And while the place we had for those midterm tenants had a small little

00:25:02.320 | kitchenette, they were eating in the hospital cafeteria every time they were

00:25:06.800 | working.

00:25:07.240 | And since they were only there for three months when they weren't working, they

00:25:10.400 | were out at the coffee shop, they were out, you know, enjoying dinner at a local

00:25:14.040 | hotspot.

00:25:14.720 | And then that third tenant base is that long-term tenant that's there for 12

00:25:18.640 | months.

00:25:18.960 | But even then, a lot of times the longer-term tenants, they don't need a lot

00:25:22.600 | of space.

00:25:23.240 | You know, the grad student or the person like at like a Google that has all those

00:25:28.240 | benefits there at work.

00:25:29.320 | So there's a lot of options.

00:25:30.880 | And if you think through like, "Hey, what's the best type of house hack that

00:25:34.360 | fits my need?"

00:25:35.160 | And then pair that with, "What's the best type of tenant base that also fits the

00:25:39.480 | space and what I like as well?"

00:25:41.440 | Yeah, I think it's interesting.

00:25:44.120 | I've always been a bit turned off by rental properties as a thing to own because

00:25:51.200 | I wasn't really that excited about being a full-time landlord.

00:25:54.480 | But I think I found when I was running this, I guess, income suite, when it's

00:26:00.120 | nearby and it's a house you know and understand because it's yours, it's much

00:26:05.400 | less work than if you had a property 40 minutes away or even 15 minutes where

00:26:10.480 | you've got to drive over and figure out what happens.

00:26:12.480 | And so I actually found it to be a little less work than I thought.

00:26:16.320 | But earlier, you said something about net profit.

00:26:19.440 | And I think something that maybe I naively didn't think about was anytime

00:26:24.320 | you're buying something that you wouldn't otherwise need for the purpose of

00:26:27.600 | generating income, you still have to look at it like a business.

00:26:30.960 | And you could think that, "Oh, if I could get this much for rent, it would break

00:26:36.400 | even."

00:26:36.760 | But you might not realize it's hard to keep a place occupied 100% of the time.

00:26:42.120 | And there are maintenance things.

00:26:44.480 | Could you walk through all the things that you would be thinking about if you

00:26:47.720 | were considering getting a space to rent it out, the different costs, and how to

00:26:52.680 | make sure it really will be a good income producer?

00:26:55.280 | Yeah, so I'll start with maybe just an overview of what you'd want to think if

00:27:00.320 | it was a true investment property.

00:27:02.160 | And then we can sort of tie in how that relates to house hacking.

00:27:05.320 | Because I think you should have that same mentality of, "Am I going to buy this

00:27:09.280 | property, just a house hack, and then sell it when I'm done?

00:27:12.800 | Or do I want to turn it into a long-term rental?"

00:27:15.640 | So the place my wife and I bought in Uptown, New Orleans, our goal was to turn

00:27:20.600 | that into a full rental property.

00:27:22.280 | So that's still cash flowing and it's great.

00:27:24.120 | So first thing I look at is, what could be the gross rent?

00:27:28.600 | You can use a tool like Rent-A-Meter.

00:27:30.520 | And there's a lot of other things that will say, "Hey, here's what a one-bedroom

00:27:33.560 | should rent for in your city," or a three-bedroom and two-bathroom.

00:27:37.000 | And then you want to look at vacancy.

00:27:39.040 | So you just Google your city and average vacancy rate, it's going to come up.

00:27:43.760 | But what you want to think about is, even if a tenant moves out on day one, you're

00:27:48.320 | going to have to clean it, you're going to have to do some stuff, and you start

00:27:51.400 | marketing it, there's very few tenants that want to move in the next day.

00:27:54.880 | So you got to figure it's going to be empty for at least a week, if not a month.

00:27:59.960 | So figure out vacancy, plan to have it empty two to four weeks out of a year if

00:28:06.920 | a tenant's turning over every year.

00:28:08.920 | You want to look at what's called maintenance.

00:28:11.000 | So this is little things like, "Hey, the thermostat's not working.

00:28:15.040 | I got to call the HVAC guy," or, "The fridge went out," little things like that.

00:28:19.880 | Then you want to look at CapEx, so CapEx is a big capital expenditure.

00:28:26.000 | It's like the roof.

00:28:27.000 | When's the roof going to go out?

00:28:28.440 | So you can say, "Hey, my roof's going to cost 20 grand to replace,

00:28:32.000 | and it's due in 10 years.

00:28:34.040 | I should be setting aside two grand a year over the next 10 years so I can afford it."

00:28:39.280 | And so you can figure out some of the bigger things on your house and then back

00:28:45.160 | those out over a period of a year to figure out how much you'd be setting aside.

00:28:49.200 | The rule of thumb for maintenance is to set aside five to 10% of your gross rent.

00:28:54.760 | So if you're renting a duplex and you're getting $1,500 for each side, $3,000 a

00:29:01.360 | month, you're going to want to set aside about $150 to $250 a month.

00:29:06.320 | Some months, you'll never have maintenance.

00:29:08.960 | And then other months, all of a sudden, the fridge goes out, can't be fixed.

00:29:12.200 | You got to buy a brand new fridge, a thousand bucks.

00:29:14.400 | And then you're just going to want to look at any, what I call miscellaneous

00:29:17.800 | stuff, utilities, do I got to do trash, lawn care, shoveling snow, things like that.

00:29:24.080 | A lot of that you can do yourself or you can hire it out if you don't want to.

00:29:28.360 | And then the last thing to think about is property management.

00:29:31.880 | So do I actually want to manage the tenants?

00:29:34.560 | If they're on the other side of the property or they're in my finished

00:29:37.680 | basement, maybe I don't mind doing it.

00:29:40.640 | Or, Hey, I want a house that can not deal with anyone.

00:29:43.200 | Let me hire a property manager.

00:29:45.000 | Property manager is going to take eight to 10% of those gross rents.

00:29:49.840 | So if you've got a place that's renting for $1,500, figure a property manager is

00:29:54.520 | going to take on average about $150 of that, so you sort of look at those

00:30:00.720 | expenses of a rental and then you should do that for a house act, but say, great.

00:30:06.200 | Well, if, if I'm living in one part, what, what should this part rent for?

00:30:10.520 | Okay.

00:30:10.880 | So I should be thinking about that for setting aside for maintenance.

00:30:14.960 | I should be thinking about what the big things are for

00:30:17.840 | CapEx, setting those aside.

00:30:19.720 | Obviously there's not going to be vacancy on my side.

00:30:22.880 | There will be on the tenants portion.

00:30:25.160 | And then you can sort of look at that and say, great.

00:30:27.840 | You know, how is that working out compared to what the mortgage is?

00:30:32.560 | And then the other thing I think about is housing savings.

00:30:35.280 | So, you know, when me and my wife moved to new Orleans, the place we were

00:30:38.840 | renting was like $1,500 a month.

00:30:41.080 | So we realized, Hey, we could go into this house hack and we could bring in

00:30:46.360 | enough income to cover all the mortgage.

00:30:50.080 | And if we rented out the ADU, we'd have an upside, but we looked at it of great.

00:30:53.880 | So we're breaking even we're covering the mortgage taxes and insurance, but now all

00:30:59.160 | of a sudden, you know, that that's breaking us even, but we're saving $1,500 a month

00:31:04.120 | from what we were previously paying.

00:31:06.720 | So there's that savings there.

00:31:08.080 | So we said, great.

00:31:08.880 | If we are saving 1,500 a month, let's put aside 500 for maintenance and CapEx.

00:31:13.840 | And then if our, our outbuilding or ADU guest house, anything we get above

00:31:19.000 | that is the gravy money.

00:31:20.560 | So, you know, for in that situation, we went from renting paying 20 grand a year

00:31:25.400 | to living in the house act, saving 20 grand a year from not paying rent, plus

00:31:30.720 | having an extra eight to 10 grand a month on top of that, on top of paying all of

00:31:35.320 | that mortgage taxes and insurance.

00:31:37.360 | So that's sort of like a, a long, long way to think about how to look at a house

00:31:42.960 | hack and then how to think about analyzing a rental property of all the fees you

00:31:48.560 | need to think about that could be in there.

00:31:50.200 | Is there any kind of ratio of average rent to average purchase price to get a

00:31:55.320 | sense of like, is this a good place to, you know, whether it's a rental property

00:31:59.480 | or a house hack to do it?

00:32:00.640 | Yeah.

00:32:01.320 | So the, there used to be this old rule of thumb called the 1% rule.

00:32:05.120 | And I look at this as just it's back to the napkin rule of thumb.

00:32:08.560 | So if you're buying a place for a hundred thousand, it should rent for 1%, a thousand

00:32:14.800 | a month in very high cost of living areas that just doesn't work very well.

00:32:20.240 | And again, that's just a rule of thumb.

00:32:22.080 | I, I use that as, Hey, a realtor sent me a deal.

00:32:25.640 | They think it'll be a good rental property.

00:32:28.200 | I can really quickly look and say, you know, does it meet the 1% rule?

00:32:32.840 | Is it close to it?

00:32:33.960 | If so, then I'll go spend the time of walking through the property.

00:32:37.520 | It's just tough to see if it will actually work in a place like a San

00:32:41.400 | Francisco or a New York city.

00:32:43.640 | Most of the other parts of the country, it's a nice little rule of thumb to use.

00:32:47.200 | But again, it's just that it's just a rule of thumb.

00:32:50.080 | Yeah.

00:32:51.040 | That makes sense.

00:32:51.880 | And, you know, as much as I enjoyed being a landlord from the income producing

00:32:57.320 | side, the, you mentioned a property manager and that was something that I, I

00:33:00.960 | never considered, but does that include all the maintenance issues is hiring a

00:33:05.440 | property manager going to mean that at midnight, if the sink stops up, I'm

00:33:09.720 | not getting the phone call.

00:33:10.960 | Yeah.

00:33:11.640 | So a property manager is really going to do three areas, right?

00:33:15.320 | It's, we're going to take, take over the property in the sense

00:33:19.480 | of here's the rental unit.

00:33:21.080 | They're going to market it.

00:33:22.360 | They're going to find tenants.

00:33:24.000 | They're going to screen tenants, make sure, you know, credit background

00:33:27.920 | check, they're going to price the unit.

00:33:29.640 | And then there, when they find a good applicant, they're going to go through

00:33:33.400 | signing a lease and they're going to put the tenant in it.

00:33:36.240 | So I sort of that first piece of property management does is

00:33:39.320 | market and fill the unit.

00:33:41.400 | The second piece they do is manage the property ongoing.

00:33:44.880 | So if that tenant calls at two in the morning, says the toilets broke in and

00:33:49.080 | backed up or the sink won't stop running, they're going to be calling the property

00:33:54.080 | management company, not you.

00:33:56.280 | And then the property management company is going to send out a maintenance person.

00:34:00.000 | Now their fee won't cover the maintenance costs, that service costs.

00:34:05.160 | So if the plumber sends them a bill for 250, they're going to

00:34:08.080 | pass that bill on to you to pay.

00:34:10.560 | But they're managing that process, which is pretty nice because a lot of times

00:34:14.960 | when stuff seems to go wrong with the property, it goes wrong when you're

00:34:18.720 | traveling or you're at work in a meeting and can't get your phone.

00:34:21.480 | So it's, it's great to have the property management take care of that.

00:34:24.400 | So they sort of do that ongoing management.

00:34:27.120 | And then the third piece that the property management will take

00:34:30.480 | care of is what I call the lease renewal or turnover.

00:34:35.200 | So, you know, the tenant signed a one-year lease, you know, the lease

00:34:39.120 | is getting ready to expire in 45 days.

00:34:41.080 | The property management company is going to reach out to them,

00:34:44.600 | ask them to re-sign a lease.

00:34:46.240 | They'll go through that re-signing process, update the lease,

00:34:50.560 | re-verify any information.

00:34:52.480 | Or if they're going to move out, they'll go through the whole move-out process,

00:34:56.640 | getting the property cleaned back up and ready to go back into that first

00:35:01.120 | phase of remarketing and filling it.

00:35:03.200 | I always say for new folks, you should manage your property for at least the

00:35:07.120 | first year, just so you understand the process and then turn it

00:35:11.200 | over to a property manager.

00:35:12.600 | It'll make you more effective at working with a property manager because

00:35:16.520 | you'll understand what, what they're doing.

00:35:18.280 | But again, if you're that person that says, look, I'd love the house act.

00:35:21.200 | I just don't ever want to deal with the tenants.

00:35:23.600 | There's a lot of folks that will tell the tenants that they're just a renter

00:35:27.520 | also, and the property manager takes care of it and they don't know who the owner is.

00:35:32.320 | So there's a lot of different ways you can approach it.

00:35:35.880 | But property management is a great, great way to go.

00:35:38.160 | If you want to be hands-off as possible.

00:35:40.120 | That's amazing.

00:35:40.960 | I love the idea of not, not telling the other person that you're the owner.

00:35:44.160 | So you can kind of be, "Oh, that terrible owner.

00:35:46.960 | You know, this thing's always clogging up."

00:35:48.720 | I want to jump back to a couple of the types of house hacking.

00:35:53.320 | And one in particular is ADUs.

00:35:56.120 | And if I run through them again, it's kind of obvious, you know, room rental,

00:36:00.800 | renting, having roommates makes sense, buying a duplex, turning something in

00:36:05.000 | the house, whether it's a basement, an attic, or an extra bedroom that has an

00:36:08.240 | entrance into an income suite.

00:36:09.640 | But ADUs are interesting because I don't know a lot about them.

00:36:13.600 | Is this something where it's easy to just build one on your property?

00:36:17.560 | Do you need permits?

00:36:18.800 | So the thing I love about an ADU is right now the multifamily market is so hot.

00:36:25.720 | Like if you try to find a duplex or a triplex, they go really quick because so

00:36:30.600 | many people want to be in real estate.

00:36:33.360 | But if you look at properties that have that detached building, you're just going

00:36:38.560 | to be competing with the average home buyer.

00:36:40.400 | And then a lot of folks nowadays, when you've got homes, they like the garage

00:36:45.040 | actually attached to the building.

00:36:46.800 | So it's a really easy way to find a property to house hack.

00:36:49.960 | You specifically look for those detached buildings.

00:36:52.680 | And then what you can do is if the building's existing, it's pretty

00:36:56.040 | easy to get it converted.

00:36:57.440 | You do need to get some permits if you got to run new electrical and plumbing to it.

00:37:03.680 | You know, luckily with like the ADU, we had plumbing and electrical lines were

00:37:08.280 | already ran out there and we were able to keep a one-car garage and then

00:37:12.760 | convert it into this two-story loft.

00:37:15.080 | So it just sort of depends on that side.

00:37:16.880 | If it's an existing building, it's a lot easier.

00:37:19.120 | Now, if you have the space to build a building, that's going to

00:37:23.280 | be a little bit more challenging.

00:37:24.760 | So one of the things down in LA that they did is there's

00:37:28.960 | obviously a housing problem.

00:37:30.760 | So one of the ways to solve a housing problem is you allow more density in housing.

00:37:35.760 | So they actually passed laws to let people start to build ADUs because

00:37:41.040 | they said, "Hey, this is an easy way to add more rental units.

00:37:44.240 | Let someone build an accessory dwelling unit."

00:37:46.880 | So you can actually go through the process of having plans drawn up, building a brand

00:37:51.160 | new building and making that guest house, outside building rental.

00:37:56.360 | And it's a pretty cool process because you can customize it.

00:38:00.040 | I'll send you for your show notes.

00:38:01.480 | We actually interviewed a designer and builder that builds ADUs.

00:38:06.800 | That's all he specializes in.

00:38:08.600 | And he has some really, really cool knowledge about how to build a smaller

00:38:12.520 | space, make it really more effective.

00:38:14.360 | And he works specifically in California, but it was a phenomenal episode.

00:38:18.880 | And he talks about going through the zoning and building permitting process.

00:38:22.720 | But it's one of those phenomenal things that you can do where you can build an ADU.

00:38:27.000 | And while maybe you live in the ADU and you rent the big house when you're young

00:38:31.840 | and you're single, or maybe you're just a young couple, and then once you start a

00:38:36.160 | family, move into the bigger building and now rent the ADU, you can rent the ADU on

00:38:41.680 | Airbnb, you can rent it to travel nurses, you can do a long-term tenant.

00:38:45.280 | And then as your life changes and you've got that teenager and you don't want them

00:38:49.560 | in the house because they're moody and they hate mom and dad, put them out in

00:38:52.680 | that ADU, right? And now the ADU can just be this really cool way of how you can

00:38:58.600 | live in that property.

00:38:59.920 | And over a 10 or 15 year period, that property can transition with you through

00:39:04.520 | life by starting the smaller unit and renting the bigger unit and then switching.

00:39:09.960 | And then it's just a cool way to have it work with you through life.

00:39:13.880 | It sounds like a great idea if you have the space.

00:39:18.320 | How much ballpark does it cost to build an ADU on your land?

00:39:23.840 | I think $40,000 to $75,000, just depending where you're at in the country, any

00:39:30.000 | permitting fees that are out there and how big you want to make it.

00:39:33.720 | Obviously, if you're trying to make a three-bedroom ADU completely from scratch,

00:39:39.480 | they got to pour a foundation.

00:39:40.840 | Our ADU, because it was this old existing barn building, the frame was there, it had

00:39:46.280 | a roof on it. We had to replace the roof, the windows were good, we had to do new

00:39:51.760 | siding. But we probably spent $25,000 on our ADU.

00:39:55.840 | And right now we have travel nurses in it at $1,000 a month.

00:39:59.960 | So if you're looking at just a basic ROI, even if we spent $40,000 on it, that's

00:40:07.120 | bringing in $12,000 a year, simple ROI, you're making a really good return there.

00:40:12.840 | And I assume when you turn around, if you ever sell that property, the value of that

00:40:16.840 | property goes up as well.

00:40:17.960 | It's not just extra income, but the whole value goes up.

00:40:20.800 | Yep. Now, an ADU isn't valued the exact same way as the main building, but because

00:40:27.040 | it's a heated and cooled condition space, it does drastically increase the value of

00:40:32.760 | the property.

00:40:33.400 | Can the cost that you need to build an ADU, can you add that to your mortgage?

00:40:38.480 | Is there a way to build it if you don't have the $40,000, $70,000 in cash?

00:40:43.400 | Yeah. So a lot of people, they'll get a first mortgage and then they'll say, "Hey,

00:40:49.720 | great, we're buying this property.

00:40:51.040 | There's like a garage building on there.

00:40:52.760 | We know we want to convert it or there's space and our city and county will let us

00:40:57.400 | build it." So they'll either use savings or if they've got, say they've been living

00:41:02.280 | in the property, like, "Hey, we can actually do this." A lot of folks will use an

00:41:06.480 | equity line. So they'll get that second mortgage equity line on their property and

00:41:11.400 | they'll get that equity line for $50,000 and use that to pay for that building.

00:41:16.600 | And then once the building's done, the value of the property is increased.

00:41:20.280 | They refinance and pay off that equity line or second mortgage.

00:41:24.480 | And now they've just got the one flat rate, low payment mortgage.

00:41:27.960 | And then you've got that higher appraise value to do that.

00:41:32.640 | Yeah. One thing we didn't talk about much, when you said the straight cost, right?

00:41:38.960 | You just get $1,000 a month, that's $12,000 a year.

00:41:41.560 | How do taxes play into house hacking?

00:41:44.240 | And I know neither of us are CPAs, but we'd love your...

00:41:48.840 | Good disclaimer.

00:41:49.920 | Yeah. So you're definitely going to want to work with an accountant.

00:41:55.920 | A good accountant is going to save you more money than they cost.

00:41:59.760 | So one of the things, when you look at a property to house hack, when you're living in it,

00:42:04.280 | let's just say, I'll use that, our property we had in Uptown, three units in the main

00:42:10.120 | building, and then we had an ADU.

00:42:12.200 | We were living in roughly 25% of the building.

00:42:15.520 | So what our accountant did is say, great, the other 75% of the property is rental, is

00:42:22.640 | considered rental property.

00:42:23.960 | That was generating X amount in gross rent.

00:42:27.360 | We could back out 75% of our mortgage, 75% of our taxes, 75% of the utility bills for

00:42:34.360 | the property. We paid all the exterior lights, any maintenance costs were deducted from

00:42:39.800 | those gross rents that we are collected.

00:42:42.480 | And then what was left, we had depreciation.

00:42:46.680 | And this is one of the big wealth builders for depreciation is, I'll try to oversimplify

00:42:52.320 | this, depreciation, the IRS says, let's take the value of the property, divide it by 27

00:42:57.680 | and a half years.

00:42:58.760 | And that gives you a depreciated value where the value of the property should be less

00:43:04.480 | each year. So with our Uptown property, we had about 16 to 18 thousand dollars in

00:43:10.680 | depreciation a year.

00:43:11.880 | And that was essentially wiping out all of our gain.

00:43:16.280 | And I'm doing air quotes for folks that are only listening.

00:43:19.600 | So we ended up paying zero taxes on all that extra income we had after paying all of

00:43:26.200 | the expenses. And that's why so many millionaires and multi-millionaires own real

00:43:32.320 | estate is because it's such an incredibly wealth building tool.

00:43:35.720 | You've got that tax benefit, you've got the appreciation, the tenants are paying down

00:43:41.840 | the mortgage, which is essentially like a forced savings account for you.

00:43:45.840 | And then you're getting the cash flow as well.

00:43:48.440 | So it's a beautiful, beautiful way to build wealth.

00:43:51.360 | Yeah. I mean, the one thing you just said, the forced savings vehicle, I think, is a

00:43:56.440 | really important point to hit on, because when we were in San Francisco, we had an

00:44:01.280 | apartment and the rent was covering the mortgage payment.

00:44:04.000 | And I often had people say, well, what about the property tax?

00:44:07.400 | I said, OK, well, it didn't cover all of that, but the mortgage payment was paying

00:44:12.000 | down the house. And so, you know, I was thinking, OK, well, I'm actually able when

00:44:17.880 | we sell the house to recoup a lot of the equity value I've put in.

00:44:21.400 | So, you know, if you're looking at these costs, in some ways you could say, as long

00:44:28.200 | as the amount I'm making covers all of my expenses, the property tax, the

00:44:32.600 | maintenance, and it doesn't actually have to cover your whole mortgage, even if it

00:44:37.080 | just covers the interest portion of the mortgage.

00:44:39.480 | That's all of your outlay, because the way I like to think about it is every dollar

00:44:44.240 | you put towards the principle of your home, that's a dollar you get back later in

00:44:47.040 | life. Obviously, it's possible that home value doesn't go up.

00:44:50.720 | But in general, like you said, in the long run, all your principle payments are

00:44:55.720 | coming back to you when you sell the house.

00:44:57.480 | So you don't have to cover the whole mortgage for this to still be a good deal.

00:45:00.800 | Well, just since we've been talking about our property in uptown, the tenants are

00:45:05.560 | paying down the mortgage, which is putting about $10,000 to $11,000 here in

00:45:10.880 | 2021, paying down on the principle.

00:45:14.480 | You know, that's $11,000 that our net worth is increasing on top of the cash flow, on

00:45:19.640 | top of the appreciation.

00:45:21.040 | And, you know, I love real estate for so many reasons, but let's say the property

00:45:24.760 | never appreciates. Let's just say it always stays flat.

00:45:27.560 | You're still going to have equity growth because of that principle pay down.

00:45:31.720 | So if the property stays flat, you win.

00:45:34.400 | If the property value goes up, you win.

00:45:36.520 | If the property value goes down and only stays down, you lose.

00:45:41.280 | But most likely what's going to happen if you're looking at a longer hold period,

00:45:44.560 | it'll go down and then it'll go back up.

00:45:46.720 | So there's just so many ways to benefit from real estate investing.

00:45:50.320 | And, you know, house hacking is this great tool to get your foot in the door to do

00:45:54.720 | broader real estate investing.

00:45:56.160 | But if you never want to be a real estate investor, just use house hacking as an

00:46:01.160 | amazing life hack, right?

00:46:02.520 | Use it for three, four or five years to get ahead financially, to pay down your

00:46:07.320 | student loans, to pay down the credit cards that you ran up.

00:46:10.240 | Maybe you're just having your first child and say, hey, you know, we can live in a

00:46:13.680 | small two bedroom for, you know, four or five years.

00:46:16.440 | Use that savings to max out a bunch of money into a 529 plan for your child and

00:46:23.400 | then stop putting money in.

00:46:24.600 | And, you know, when they're ready for college, there'll be plenty of money in

00:46:27.480 | there for them. It's a really amazing hack that you can use.

00:46:32.200 | As long as you want, or as short as you want.

00:46:34.400 | Or like you said, take it and travel.

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00:47:58.560 | If not, definitely go back and give it a listen.

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00:49:03.520 | I just want to thank you quick for listening to and supporting the show.

00:49:08.640 | Your support is what keeps this show going.

00:49:11.480 | To get all of the URLs, codes, deals, and discounts from our partners, you can go to

00:49:16.840 | allthehacks.com/deals.

00:49:19.720 | So please consider supporting those who support us.

00:49:22.880 | Over the years, it sounds like you've bought and sold quite a few properties.

00:49:26.800 | Yeah.

00:49:27.320 | You know, I know not everyone here is thinking about house hacking, but, you

00:49:32.080 | know, many people are thinking about buying homes or selling homes.

00:49:35.880 | Are there hacks or tips or tricks you'd give people, whether it's for a house

00:49:39.960 | hack, a rental property, or a primary residence when you're looking for a house

00:49:43.680 | or selling a house to keep in mind that not everyone knows about?

00:49:47.480 | Yeah, so on the buying side, I would say look for the problems.

00:49:52.360 | Look for the ugly houses.

00:49:54.560 | If you can find the ugliest house in the best neighborhood, you can go in and spend

00:49:59.320 | time to fix it up.

00:50:00.440 | You know, if you put in a little bit of TLC, a little bit of love, you can end up

00:50:04.680 | with a great deal and then you can really customize the house.

00:50:07.800 | I love when I see pictures online of houses and they've got the pink tubs and the

00:50:12.960 | pink tiles that are from the 70s because to me that says, "Hey, this is awesome.

00:50:18.360 | I can customize that bathroom and bring it up to date."

00:50:21.880 | And that's really going to increase the value where the average homeowner might

00:50:26.240 | walk through and be like, "Oh my goodness, this is a horrible bathroom.

00:50:29.000 | I would never live here."

00:50:30.080 | And they go out.

00:50:31.400 | I love smelly houses as well because the average person doesn't want to deal with

00:50:36.760 | the smelly house.

00:50:37.720 | Me, I think a smelly house, I'm like, "This is awesome."

00:50:41.000 | You know, I get a smile on my face when the realtor is like, "It's gross."

00:50:45.400 | Because you rip out all the carpet, you wash everything down with this cleaner

00:50:50.720 | called TSP, you run a no-zone machine and that kills the smell.

00:50:54.680 | And then you do a kill paint sealer on everything and then you put it back

00:50:59.160 | together.

00:50:59.600 | So I look for the things that the average homeowner doesn't want to deal with.

00:51:04.800 | I also like when I go look on like realtor.com or Redfin, I do the reverse

00:51:11.120 | search.

00:51:11.480 | So usually I say, "Hey, this property just came on two hours ago."

00:51:14.640 | Everyone's looking at that one.

00:51:16.400 | I say, "Show me the property that's been on the longest," because that person is

00:51:20.680 | probably willing to negotiate and willing to cut their price.

00:51:24.400 | And then the other thing when you're buying a property, it's sometimes hard to

00:51:28.960 | do in a really hot market, but ask the seller to pay a portion of the closing

00:51:34.240 | cost.

00:51:34.560 | They can give you a seller credit or a seller concession, and that can just

00:51:38.400 | reduce your cash to closing.

00:51:40.160 | So even if you've got 20, 30, 50 grand saved up, closing costs can easily run

00:51:47.240 | you depending on where you're at in the country, eight to 10 grand.

00:51:49.760 | So if you can get the seller to pay part of that, look at that as a lever.

00:51:54.480 | So maybe they, for whatever reason, they have to have a five, they've got to sell

00:51:59.680 | their house for 500,000.

00:52:02.520 | So say, "Great, I'll give you that 500,000, but can you give me $7,000 in

00:52:07.800 | closing costs credit?"

00:52:09.680 | And a lot of times folks will say yes to that, but they won't say yes to a $493,000

00:52:16.520 | sales price.

00:52:17.320 | So look at the different levers that you can pull and a good realtor can help you

00:52:21.560 | with those.

00:52:22.200 | Yeah.

00:52:23.400 | For the house we just purchased last year, there were a handful of things that were

00:52:28.000 | just part of the staging.

00:52:29.600 | And we were like, "We just really like this TV.

00:52:32.920 | It's already mounted to the wall.

00:52:34.320 | It's exactly where we'd want it."

00:52:35.720 | We really liked these lime trees that were all around the yard that weren't part of

00:52:40.200 | the yard because they were staged plants.

00:52:42.160 | And we're like, "We'll do this deal, but can you just throw in a long list of

00:52:46.880 | things?"

00:52:47.360 | And especially these things that have prices that are kind of unknown, but

00:52:52.160 | relative to the cost of the house, everyone knows they're pretty small.

00:52:56.160 | The sellers were willing to flex, but they were not willing to flex on the price.

00:53:01.480 | So I love this idea of just finding all the ways that you can kind of get something

00:53:06.560 | out of the deal that aren't the price.

00:53:08.280 | Yep.

00:53:08.880 | Because yeah, so many people, they mentally get stuck on this idea of like, "I need

00:53:14.080 | this certain price because they'll feel good about it."

00:53:16.360 | And maybe the lime trees were only $200 a lime tree or maybe they were $1,000 a lime

00:53:22.080 | tree, but to them it's like, "Oh, it's a little lime tree in a pot.

00:53:24.800 | Great.

00:53:25.400 | Like I'm getting my number."

00:53:26.600 | So yeah, flex on that.

00:53:27.920 | So those are a couple of things on the buy side.

00:53:29.960 | If you're getting ready to sell a property, deep clean your property and then bring

00:53:34.840 | someone in to help stage it or declutter it.

00:53:37.680 | I'm really big on, I know what I'm good at and it's worth spending money on experts.

00:53:43.160 | You know, one of my early real estate mentors, he goes, "Andrew, if you ever get

00:53:46.920 | in financial trouble with tenants over leases or potential lawsuits or

00:53:51.920 | negotiation issues, figure out the best lawyer you think you can hire and then go

00:53:57.120 | hire someone better.

00:53:58.200 | It'll pay off."

00:53:59.440 | And I'm that same way.

00:54:01.440 | If I'm going to sell a property, I'm not going to try to skimp.

00:54:04.960 | You know, I don't want the realtor that's going to cut a quarter percent off or a

00:54:08.240 | half percent off and then miss out on the realtor that's the rockstar that has the

00:54:12.720 | giant team, has the giant network.

00:54:14.960 | I feel like I'm okay with design.

00:54:16.840 | My wife is even better.

00:54:18.560 | But even with that, you know, this is stuff that we're emotionally attached to.

00:54:22.400 | I want someone else to come in and say like, "Hey, you need to declutter this

00:54:26.000 | stuff. You need to remove that.

00:54:27.520 | It's to your taste.

00:54:29.280 | It's not common enough or generic enough that it's going to appeal to everyone."

00:54:33.920 | So I always say like, bring cleaners in to do a deep clean and then bring someone in

00:54:38.320 | to help declutter.

00:54:39.640 | And even if you're keeping your stuff in there while it's being sold, have someone

00:54:44.360 | help stage it and rearrange it.

00:54:46.280 | You know, maybe you've got the living room laid out where it's perfect for you all

00:54:49.800 | for sitting at the TV and it's comfortable and you've got all the extra pillows on

00:54:53.640 | it and, you know, throw rugs and all sorts of weird stuff.

00:54:57.160 | But for the person coming in, the layout might seem a little funkier or might not

00:55:01.800 | flow with stuff or might not make the house present as well.

00:55:04.560 | So to me, that curb appeal and that presentation on the inside really do go a

00:55:09.560 | long way.

00:55:11.120 | Yeah, we paid a premium for good staging when we sold our San Francisco apartment and

00:55:16.480 | I regretted it for like the first week and then the house sold in a week and I did not

00:55:21.520 | regret it. And I think it's tough because, like you said, your style isn't always the

00:55:26.760 | style that sells.

00:55:27.920 | And when you hire someone that's been doing this a lot, they know the style that

00:55:32.040 | sells. And they designed the house in a way that I was like, "I wouldn't want to live

00:55:36.640 | here." But, you know, it's what everyone wanted.

00:55:39.360 | So I really like that advice.

00:55:41.240 | The only thing I'll add, my brother-in-law gave me this advice, is when you're buying,

00:55:45.960 | whether it's through the real estate agent or if you can somehow get in touch with the

00:55:50.720 | sellers, if you can find out what the priority is, some people want to sell fast, some

00:55:55.760 | people want the highest number.

00:55:57.080 | There's always one lever.

00:55:59.240 | And if you identify that someone wants to get the highest offer, well, then you don't

00:56:05.280 | necessarily need to worry as much about how quickly you can close and maybe you could

00:56:09.120 | put in some contingencies, maybe not in today's market.

00:56:12.280 | But if you find out that someone just cares about closing as fast as possible, then you

00:56:17.000 | can put in a time to close.

00:56:18.720 | And the advice that he gave me, which I will caveat this with, it's certainly a risky

00:56:25.480 | move, was you can always...

00:56:27.600 | It's easier to extend an offer that's been accepted than it is to ask for longer time

00:56:32.680 | up front. So he said, "We guarantee a 15-day close." And I asked him, "How long did the

00:56:38.000 | bank say they could close?" And he's like, "Oh, they said 21." But I figured that once

00:56:42.840 | we're 15 days in, if I need seven more days, they'd rather give it to me than start the

00:56:47.040 | whole process over again and look for another person.

00:56:49.480 | It's like, "Well, we're already almost all the way through with them, so let's give them

00:56:52.680 | a little bit more."

00:56:53.720 | So you mentioned hiring the best lawyer you can and then upgrading that if you have

00:56:58.160 | financial trouble with tenants.

00:56:59.440 | I'll just ask, you've had a lot of tenants.

00:57:01.480 | Have you had any fun stories or terrible things or interesting tales?

00:57:06.480 | So my original investing career was very focused on affordable housing and what I would

00:57:13.320 | call like student housing, college housing by universities back in North Carolina.

00:57:17.960 | The affordable housing, I did a lot of aid work overseas, worked in places like

00:57:23.440 | Indonesia, Philippines, Kenya, Haiti.

00:57:25.960 | So this idea of community development in very challenging places, coming back to where I

00:57:32.040 | lived, I was like, "Oh, this is nothing." So I did a lot of affordable housing and I

00:57:36.440 | wouldn't recommend affordable housing for anyone that's new, but it was a great way

00:57:41.560 | to get started.

00:57:42.240 | I mean, I had a property where I was under contract on it and the SWAT team raided the

00:57:48.120 | apartment. So I think that would probably freak out most people.

00:57:51.600 | What happened to me was I'm getting a better discount.

00:57:55.040 | You know, so I mean, literally they came in, they knocked the doors off one of the

00:57:59.560 | rental units. This was a fourplex that I was buying and folks in the top unit were

00:58:03.840 | selling some drugs.

00:58:04.880 | I knew it was a bad area.

00:58:06.120 | I was planning on clearing out the unit.

00:58:08.120 | But to me, that was automatically like, "This is a problem and a challenge.

00:58:12.600 | There's upside for me." So I went back to the owner and I said, "Look, hey, this

00:58:17.680 | building," you know, I pretended to be nervous and scared and, "Oh my goodness, this

00:58:22.400 | is so horrible. I didn't know this was going on." And we negotiated the price down

00:58:26.480 | lower. But from my standpoint, it was like, "Well, I was going to put new doors on all

00:58:30.120 | the units. I wanted to get rid of that tenant anyways." So that just sort of solved

00:58:35.280 | that problem. And I could use that as a negotiating tool.

00:58:38.560 | And then also in that affordable housing, I unfortunately had to do a lot of

00:58:43.840 | evictions. I think I probably did 20, 25 evictions.

00:58:47.120 | I did them all myself except for one where the tenant appealed and then we had to go

00:58:53.320 | to a higher level court.

00:58:54.560 | And at that level, I brought in a lawyer.

00:58:57.520 | But the reason I won all of them was because I used leases.

00:59:02.880 | So even if you're going to house hack and you're bringing in a friend to live in a

00:59:06.720 | room, get a lease and make sure to follow everything in that lease.

00:59:11.000 | So I had great leases.

00:59:12.440 | And if a tenant was late, I would deliver the notice.

00:59:15.720 | And if they still hadn't paid, then we'd file in court and they'd come to court and

00:59:19.840 | they'd complain and say, "Oh, you know, this and that," or "He's a bad guy." And the

00:59:24.760 | judge will say, "Well, he brought you to court for not paying." And he delivered the

00:59:28.080 | notice. And here's proof that I delivered the notice.

00:59:30.360 | "Okay, why didn't you pay?

00:59:31.520 | Okay, great. Well, he wins." So if you have good leases, if something does come up in

00:59:37.800 | a worst case scenario, having all that stuff in writing is super valuable to have.

00:59:42.000 | It's easy when you're house hacking and it feels a little less professional than

00:59:47.360 | running a rental property to kind of let things get a little casual.

00:59:50.920 | I remember we had a friend of a friend looking for a place and we didn't take a

00:59:56.200 | security deposit because we were like, "Oh, it's just a friend." And then one day

01:00:00.360 | before they were supposed to move in, they backed out and we couldn't find a tenant

01:00:04.120 | on a day's notice. So we had about a month's worth of rent that ended up getting

01:00:07.760 | lost. And it was just a learning moment for me.

01:00:10.560 | So my takeaway now is find a place that's smelly, that has a pink bathtub, and

01:00:16.240 | ideally that the SWAT team has recently raided.

01:00:18.480 | Yes, yes, yes. If you find those three, that's the trifecta.

01:00:22.040 | You're going to get a great deal on the property.

01:00:24.720 | That's amazing. So right now, it's definitely a hot real estate market across

01:00:29.880 | the country. Does that make house hacking more appealing, less appealing? Any tips

01:00:34.760 | to take advantage of it?

01:00:35.800 | Yeah. So I'd say it can be both. Rents have gone up across the country. Obviously,

01:00:43.880 | there was in some areas last year due to COVID, where rental prices went down in

01:00:48.400 | major cities. But if you look at it, it's rebounding all across the country. If

01:00:52.560 | you're paying 30% or 40% of your income towards rent and you're not getting ahead

01:00:59.520 | financially, if you're making $20,000 a month and you're spending $8,000 on your

01:01:05.080 | housing and you've got $5,000 left over to put towards investments, cool, you're

01:01:09.880 | probably in a good spot. But for most folks, housing's taking up so much, it's

01:01:14.640 | not letting them pay down debt or put money away for investment. So to me, I'd

01:01:19.320 | say yes, you should really look at house hacking. And then in any market, there's

01:01:23.880 | going to be assets that are overvalued and there's going to be assets that are

01:01:27.600 | undervalued. And that's the same thing in real estate. You just got to go out and

01:01:32.480 | look at that property, that asset that's being undervalued for whatever reason,

01:01:37.280 | and then use that as a good property to house hack. So you get a lot of upside

01:01:41.800 | while reducing your housing costs. So even if there is a housing correction in

01:01:47.440 | the next two years and housing drops 10 or 15%, or say even 20%, but if you bought

01:01:54.200 | that property that was undervalued by 10 or 15%, and then you're able to go in and

01:02:00.360 | buy it and do some work to then increase it 10 or 15%. So even if there is that

01:02:05.480 | drop in two years, you're still going to be coming out pretty even if you can hold

01:02:09.680 | it for another year or two. And one other tip maybe I'll throw in here is in a hot

01:02:13.840 | market, if you think a property is good, and there's multiple offers, you can do

01:02:17.720 | something called an escalation clause, where basically says, here's my offer. If

01:02:23.240 | someone else comes in higher, you actually have to show me that offer. But

01:02:27.640 | my offer will automatically beat that offer by $1,000 or $2,000 or 5,000. And

01:02:34.000 | basically your offer will automatically escalate up into a cap. So maybe you want

01:02:39.160 | to buy this property for 300 grand. You'll say, great, here's what my offer is. I

01:02:44.080 | know the property still works up to $310,000. So I'm going to add in an

01:02:49.040 | escalation clause for $2,500 will automatically go up in a $2,500

01:02:54.760 | increment above any other offer at that cap. So that's a great way to get a

01:03:01.320 | property. You just got to be careful because some people will get emotional

01:03:05.000 | about a property and then overpay. But if you can find that undervalued asset,

01:03:09.600 | it's a great way to get into real estate, whether you're going to house hack or

01:03:14.320 | not. But I definitely think house hacking works in any market. And right now with

01:03:18.380 | housing so expensive and rent so expensive, it's a good tool to get ahead

01:03:22.320 | financially. Absolutely. I think most people aren't out there looking to house

01:03:26.520 | hack. So I know when we looked at places, having an ADU, having an income

01:03:32.360 | suite, especially when they're not labeled as such. When we were in San

01:03:36.360 | Francisco, it was a third bedroom with a second entrance. It wasn't marketed as an

01:03:39.920 | income suite. So being able to spot that, it wasn't charging a premium over

01:03:44.840 | other three bedrooms. So keep in mind as you're walking through a place, could we

01:03:48.960 | convert this to a rental? Could we make this an in-law unit? Could we build an ADU

01:03:53.880 | here? And you might be able to get yourself a really good deal. Well, I mean,

01:03:57.440 | the way most places with basements are marketed, it's like, "Oh, basement for

01:04:01.080 | kids or for the man cave." And someone's paying extra for that space when they

01:04:07.440 | might not need it. Where for us, we don't mind paying a little extra for that

01:04:11.000 | space because it can become a rental unit. So yeah, you just got to be open and

01:04:14.640 | creative and look for those hidden gems for properties. Awesome. This has been so

01:04:19.720 | fantastic. There will be a lot of links in the show notes that you guys have a

01:04:23.400 | guide about house hacking, your podcast, a couple of the episodes you mentioned.

01:04:27.000 | Where can people find you and all this information online? Yeah, my website is

01:04:31.960 | Fibirei.com. F-I-B-I-R-E-I.com. And the podcast is really easy. The House Hacking

01:04:39.720 | Podcast. Easy to find. Like you said, we'll share some of those stuff for you to put

01:04:45.000 | in the links. And then for all your listeners, if they're wondering like, "Hey,

01:04:48.520 | maybe I should get into real estate or not," we actually have a guide. We'll

01:04:52.400 | give away for free to all your listeners. I'll make a pretty link, short link.

01:04:56.440 | Fibirei.com/allthehacks. It goes through the nine biggest mistakes that real

01:05:01.800 | estate investors make. That's fantastic. Thank you for sharing that. And thank you

01:05:06.800 | for coming on the show. Yeah. Thanks again for having me on. That was amazing. Thank

01:05:11.600 | you so much for listening. My wife and I have saved thousands of dollars through

01:05:15.520 | house hacking. So I hope this inspires some of you to do the same. You can find

01:05:19.080 | links to everything we talked about, including the guide Andrew referenced in

01:05:22.560 | the show notes. I also recorded an episode with Andrew on his House Hacking

01:05:27.120 | Podcast. So if you want to hear more about my experience with house hacking,

01:05:31.040 | you can check that out too. Finally, as always, I love hearing from you all and

01:05:35.840 | trying to help you optimize your lives. So if you have questions or want help,

01:05:39.520 | please email me at chris@allthehacks.com or I'm @hutchins on Twitter. See you next

01:05:45.040 | week.

01:05:45.320 | I want to tell you about another podcast I love that goes deep on all things

01:06:05.080 | money. That means everything from money hacks to wealth building to early

01:06:08.600 | retirement. It's called the Personal Finance Podcast and it's much more about

01:06:12.960 | building generational wealth and spending your money on the things you

01:06:16.320 | value than it is about clipping coupons to save a dollar. It's hosted by my good

01:06:20.880 | friend, Andrew, who truly believes that everyone in this world can build wealth

01:06:24.720 | and his passion and excitement are what make this show so entertaining. I know

01:06:29.440 | because I was a guest on the show in December 2022, but recently I listened to

01:06:34.240 | an episode where Andrew shared 16 money stats that will blow your mind. And it

01:06:38.680 | was so crazy to learn things like 35% of millennials are not participating in

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01:06:47.640 | stats he shared. The Personal Finance Podcast has something for everyone. It's

01:06:51.720 | filled with so many tips and tactics and hacks to help you get better with your

01:06:55.360 | money and grow your wealth. So I highly recommend you check it out. Just search

01:06:59.640 | for the Personal Finance Podcast on Apple Podcasts, Spotify, or wherever you

01:07:03.800 | listen to podcasts and enjoy.