Episode 68: How to Start House Hacking

Acquania Escarne 0:00

My husband and I house hacked most of our marriage. This episode will explain why and how we did it. But before I get started, I wanted to let you know that I'm launching two new group coaching programs starting in July 2022. Program one is for women ready to work on their personal finances and start building real wealth. We'll meet twice a month for three months, you'll get one on one financial report, which means we're going to go through your finances and figure out where your money's going. We're also going to discuss how to maximize your income now and how to improve your investing and retirement savings for later. Plus, you'll get access to me through an app and have a way to track your goals and progress all with an accountability group. Spots are limited, so click in the link in the show notes to apply today. Program two is for women business owners eager to learn and implement creative retirement strategies and build a legacy. If you're ready to learn how to invest in real estate, and leverage your income, business and life insurance, this program is for you. You'll get access to me, my eBooks , and my new course the Purpose of Money Maximizer, where I teach you how to leverage life insurance to invest in real estate. This is a six month program, but it will set the foundation you need to level up your business and dive into real estate investing, including investing in hotels, and multifamily syndications. If you're interested, please click on the link in the show notes and apply today.

Acquania Escarne 1:48

You are listening to the Purpose of Money podcast, a podcast where we talk about ways to build wealth and create more freedom in your life. Today. I am your host Acquania Escarne.

Acquania Escarne 2:00

Hey guys, welcome to the Purpose of Money podcast. I'm super excited today, we're going to continue our series on home ownership because June is home ownership month. And this episode is going to focus on house hacking. My husband and I house hack most of our marriage, and I'm going to explain to you why the heck we did that. And what you can do if you want to house hack too.

Acquania Escarne 2:28

So first, let me start from the beginning. What is house hacking, right? Because some of you may be like, I don't even know what that is. So I don't know if I want to do it. House hacking is when you lease or rent out a portion of your home. In order to make passive income. It's the opportunity for you to leverage an asset you're living in and make money at the same time, you may rent out a room, you may rent out a level, you may even rent out an additional apartment if you live in a multi unit. But the point is that you are using other people's rents to cover most of your mortgage. So it's a great way to pay off your mortgage with other people's money. Now let's talk about how my husband and I house hacked in our marriage and why it was so valuable for us.

Acquania Escarne 3:24

So in 2008, when my husband and I first got married, I was also assigned in my job to work in Haiti for the next two years. And my husband and I had already decided that because his job wasn't available in Haiti, he was going to stay in DC and I was going to live in Haiti, and we would see each other about every six to eight weeks. So we had what I would call a long distance marriage in the beginning of our marriage, because we had to balance living apart. But one of the things that made maintaining two households more affordable is the fact that my husband took on a roommate when I wasn't living in the home. So I was living in Haiti and he was renting out one of the bedrooms and our condo to a new friend he'd met through his job. Someone who was new to the area was in the process of looking for a place to live, and wasn't quite sure what the neighborhoods were like. So he wanted to have time to figure all of that out. When my husband knowing that he already liked the person extended the offer to give him a space to live until he could get settled and figure out exactly where he wanted to go. Well, that friend ended up being a roommate who stayed until he decided to move out into his own place and then eventually got his own house, but in the meantime contributed to the mortgage through the rental payments. There are other times where I actually live with My husband, because after Haiti, I did come back to Washington DC. And my husband and I decided to take on another roommate, this one, being another friend who was in the fraternity of my husband. So same fraternity, they knew each other well. And I knew this person well, too, and I felt comfortable living with them. So we allowed another person to be our roommate after the other person moved out.

Acquania Escarne 5:26

One of the benefits to this is we had additional income every single month to help cover expenses for the household. We also had another person in the home who might have contributed to the food or the shopping or anything that we needed for the home. Now, I will say when your house hacking and you're doing it with strangers, it might not be an obligation or an expectation for that person to contribute to the personal fun stuff of the house. But in our case, since we house hacked with people we knew that came with the deal, right, the opportunity to live with someone you knew that you also hung out with to and would voluntarily contribute to groceries and other aspects of the home. But it didn't dawn on me until I started to prepare this series that we've actually house hacked a lot. My husband and I have been married for 14 years. But we've known each other for 19 years. And throughout our time together, we've always taken on guests, whether it be for a few months while they're getting themselves back on their feet, or for a few years while they are transitioning and looking for a home in a very difficult real estate market.

Acquania Escarne 6:43

So I find it really interesting that we did this once I reflected on it, because I just gave you two examples when my husband found the person. But then there's another situation where we have someone live with us for a year prior to deciding to move overseas. And that person was my friend. So it doesn't really matter who suggested it. The point is that in our marriage, we found ways to house hack that's comfortable for us. In our condo, we house hacked a few times with friends, but we have three bedrooms, and we have the space to do it. In our new home where we are now the last person who stayed prior to moving overseas, they took up the basement space, so the basement bedroom, and we still had the rest of the house to ourselves. And that person was given access to the laundry room and the kitchen and other things. But being that they were like family as well. We were free flowing and pretty much open at the house to everyone freely because they were like family to us. But had we decided to house hack with a stranger in our new home, we easily could have given the person the full basement and to utilize as their space and then given them access to the kitchen for cooking purposes. Because our basement, has a bathroom has a bedroom and has living space that's quite comfortable. It could be utilized as an Airbnb slash apartment, but it doesn't have cooking utilities. So that's the only thing is the person was still need access to a cooking facility, which is right above the basement in our kitchen. But it was really nice to have another person in the house because my husband traveled a lot. And sometimes me and my girlfriend who was staying with us would hang out talk or at least just keep each other company while he was traveling.

Acquania Escarne 8:37

The other benefit, obviously is the passive income, the person's paying rent, they're contributing to the bills that we have for the home. And we are using that money to further our goals. In some cases, we use a lot of the income from House hacking to put towards our investments so that our investments and savings were doing really well and growing, since we had already budget wise plan to pay our own mortgage. So we knew we could do that without someone contributing rent to the household. But if you are someone who has the space or the desire to make passive income, and you only have your home to work with, this is a great opportunity for you to consider. Because you might find one, a great roommate, two someone who might cover a large portion of your mortgage and or most of your payments for your house and three, it gives you the opportunity to test out being a landlord before you take on additional rental properties where you don't live in a home. So I kind of like to explain this to people especially if you are a person who needs the extra income you just need a couple 100 or $1,000 a month and this is the way you can do it. Now obviously renting out a room is probably going to yield less income than renting out a full apartment or a basement. But you have to look at the numbers for yourself and decide what's a reasonable rate, and then see what the market will tolerate, especially if you're going to advertise this opportunity on house hacking, or house rental, or even Airbnb sites. The reason I mentioned Airbnb is because that's an alternative, right? Like, say, you want to make extra income, you want to provide a space for people to live, but you don't necessarily want them to be there consistently. You can also consider taking a portion of your home and offering it up on Airbnb you can, or VRBO or any of the sites where you can look for short term housing, you can provide a bedroom, a nice bathroom, maybe access to the kitchen, or put a mini fridge in that space. And call that a place that people can rent for short term rentals.

Acquania Escarne 10:45

This is a great opportunity, because it could be temporary and you can fix it around your schedule. I know a lot of people who travel a lot for work, and they will utilize their home on those sites when they're not home. And then when they are home, those weeks are blocked off. So that's a great way to again make money off of your home while you're not living there or while you are living there. But doing it in a way that you don't have a consistent roommate when you want to be in this space alone. I also have a client who recently was saving for his first home. And rather than purchasing a single family home or a townhouse or condo that could only accommodate him, he decided to purchase a multi family unit. So multifamily unit is just a property that has more than one place to live duplexes have two places triplex is have three apartments and a quad, which in some states four is the max you can get and it still be residential, that's like a mini apartment building with four units or four apartments, and you live in one of them. The good news is when you purchase this type of property, instead of a single family dwelling, you can still use an FHA loan to buy it. And the FHA loan allows you to put down a very small downpayment, sometimes three to five percent of the total cost of the property. So house hacking is a great way to get multiple rental units at one time with a traditional residential loan. And all you have to do is come up with a down payment and live in one of the units. I want to emphasize that because of FHA loans when you're using them to purchase multifamily units, that is supposed to be your primary residence, and you want to make sure you're living in that home, at least for 12 months, that is a stipulation of the loan and you do not want to do mortgage fraud or lie about the context in which you intend to use the property. But that's a great way to get a home for yourself I E, one of the apartments, and then to rent out the other three, to tenants, and allow them to help you pay most of the mortgage, my client is doing this right now. And 90% of his mortgage is paid by the tenant in the other unit. So that's pretty awesome. And it's great for him. If he could have he would have charged 100% of the mortgage as rent. But in his situation, he decided to leverage an existing housing program, which had a maximum amount they were going to pay. So that's where it was beneficial for him to take this amount so that he has guaranteed income from the housing program. But then he still has to contribute the difference to his mortgage.

Acquania Escarne 13:34

But either way, I think these are all great examples of how you can leverage your rental property or your real estate in your portfolio to benefit you and to also pay down the loan using other people's money, which is really awesome. And it's like the number one thing in real estate, we talked about using other people's money to grow and develop your wealth. So hopefully that's helped you understand house hacking, and how my husband and I did it with friends, but you can also house hack with strangers. And you can also house hack on Airbnb, VRBO and other short term rental sites if you only want to give your property up for certain amounts of time throughout the year.

Acquania Escarne 14:18

So here are some quick tips on how you can determine if house hacking is something you should or can do. So the first thing you need to do is ask yourself, can I live with a stranger? Do I want someone else in my living space? The best way to determine that is to assess your space. How big is your house? How much room do you have to roam? How much room do you need to live? And if you have children, are you comfortable with another person being in the home? This is going to be the first thing you need to figure out because if you are not comfortable or you don't have enough space to share, then you may need to change where you live before you can consider this possible revenue stream for yourself. But take note of where you live, how much space you have, and whether or not it's the space you're willing to share. You know, in New York, people are sharing really tiny apartments. So that is possible if it's something you want to do, but you have to know for yourself what you're willing to do.

Acquania Escarne 15:19

Second thing is calculate your costs. Take note of how much are you currently paying for your mortgage? How much are you currently paying for utilities, it is highly likely when another person is in the home, your utilities are going to become a little more expensive. Now you have another person using the water turning on and off the lights and other things in your home. So you're going to need to kind of give yourself a 10% buffer to account for the increase once another person is living with you. Then you want to post the opportunity on websites where it can be found, or advertised within your own community that you're offering up a room or a space for rent, and you're looking for a good tenant, make sure that you vet candidates, you want to look at credit scores, you want to talk to references, try to understand how was their living situation previously, and were they a good tenant to their previous landlord, you want to do your due diligence on this because in some states, once someone is living in your home, they have rights, and it might be harder to get rid of them than you think. So definitely do your research and due diligence before you sign a lease, and allow somebody to move into your home. And make sure you know the laws of your state and your county. So you know, if you require any type of licenses to do what you're doing. For the bedrooms, a lot of times you don't need something but check with your county, check with your estate. But if you're going to rent out a full unit, you may need a license to do that. And if you're going to do short term rentals on websites like Airbnb and VRBO, you might also need a commercial license to do that. It really just depends on your state. But in Maryland, when we have a rental, we get an annual license. And when I had rentals in Philly, you also had to have a commercial license to rent. So some states do require that. And obviously, they're gonna want to know how much money you're making and take taxes. So account for that and your expenses to how much of your income that you make, will potentially be taxable income. But in the same note, make sure you're tracking your expenses too, because you want to make sure that you're writing off any expenses tied to the property that you incur in any year. So that's a great way to be prepared for tax time.

Acquania Escarne 17:40

And last but not least, be a good person, it is always a better environment for you and your tenant, when you're living in the same space or even in close proximity when you're a good person. So be a good neighbor, be a good landlord, and then let the relationship grow from there. I'm not saying you have to be best friends forever. I'm not saying you have to talk and be with one another and hang out on your personal time. But you definitely want to be polite and cordial. And as a landlord always responsive to any complaints about maintenance issues, repairs or needs that needs to be done to the property. So you know that you're doing your part to maintain a good and safe living space. Okay.

Acquania Escarne 18:23

So just to recap, this episode was all about house hacking, and how anyone can do it, married couples, I've heard of single moms with kids house hacking, choosing people that they feel comfortable to live with, and individuals who are prepared or willing to have a roommate or to share a portion of their home. So if you think house hacking is for you, I actually have some additional resources, and I'd love for you to check them out in the show notes. So on the podcast the Purpose of Money episode 18. Kendra Barnes is actually a woman who's a real estate investor who retired at 32 years old, off of the rental income from her properties, but her and her husband house hacked to really build some of that wealth and they bought properties on a consistent basis to build up their monthly residual income so that she could retire at 32 years old from a US government job. So if you want to check that out, check out the PurposeofMoney.com forward slash episode 18 and hear all about Kendra story on how she is building her own real estate empire and was able to retire at 32.

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I also want you to check out the blog the PurposeofMoney.com forward slash blog that's where all my latest articles go. And we have a really good article called Is House Hacking Worth the Trouble by Nafisa Allen. She's a great writer. I'd love for you to check out her content she outlines all the pros and cons to house hacking, and has some expert tips that you I want to consider before you take the dive into house hacking for yourself. I hope that this help episode has been helpful. And if you are going to house hack, I'd love to hear about it. So leave a comment in the show notes for me telling me more about what you got out of this episode what you think you can also leave a five star review on Apple podcasts or wherever you're listening to let me know what you think about the show. And I'd love for you also to write me I you can email me anytime info@ thePurposeofMoney.com and tell me what you think about this episode on House hacking. Are you house hacking? Are you still on the fence about it? Let me know I'd love to hear from you. And maybe I can give you some more advice that will help you decide for sure what it is you want to do. All right. Until next time, keep building generational wealth.

Acquania Escarne 21:00

Thank you for listening to the Purpose of Money podcast. For more resources and information check out my website the PurposeofMoney.com and while you're there, please sign up for our newsletter so you have the latest information on new episodes and blog posts. Until next time, keep creating freedom in your life today.

Transcribed by https://otter.ai