House Hacking as a Method of Generating Capital

[ooooskar]

Good afternoon,

I am a young unmarried man, with a high likely hood of being able to secure a good loan for property.

I am a service member who had completed the requirements to secure a VA Loan. I am in the age where most of the people who are my peers are in the college and in need of housing to the local university. I plan to move to an area which would be 5-10 minutes to the campus. I had recently graduated and as a result got a standard 9-5 job to assist in financing a property as well as approval for a better loan. I plan to live in one of the rooms and use the remaining space as a revenue generating asset. I have approximately a 760 credit score as well.

The benefit of the loan type is that I do not have to have the 20 percent down for the cost of the property, granting an advantage in terms of barrier to entry. Essentially, the liquid capital is not an issue, however I have approximately 90,000 USD to be able to put into the property.

Due to living in Southern California, I believe I would be able to get 1000 USD per person who rents a space in the house. With the mortgage being about 2000 USD per month.

TLDR: I have the opportunity to use a property to gain gain a new form of income. I have access to a loan that would not tie up too much capital in the process.

What are some things that you could recommend in my given situation? (I had majored in Finance and I have a real estate license, please do not feel the need to simplify if the advice is complex.)

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[WJK]

Good afternoon,

I am a young unmarried man, with a high likely hood of being able to secure a good loan for property.

I am a service member who had completed the requirements to secure a VA Loan. I am in the age where most of the people who are my peers are in the college and in need of housing to the local university. I plan to move to an area which would be 5-10 minutes to the campus. I had recently graduated and as a result got a standard 9-5 job to assist in financing a property as well as approval for a better loan. I plan to live in one of the rooms and use the remaining space as a revenue generating asset. I have approximately a 760 credit score as well.

The benefit of the loan type is that I do not have to have the 20 percent down for the cost of the property, granting an advantage in terms of barrier to entry. Essentially, the liquid capital is not an issue, however I have approximately 90,000 USD to be able to put into the property.

Due to living in Southern California, I believe I would be able to get 1000 USD per person who rents a space in the house. With the mortgage being about 2000 USD per month.

TLDR: I have the opportunity to use a property to gain gain a new form of income. I have access to a loan that would not tie up too much capital in the process.

What are some things that you could recommend in my given situation? (I had majored in Finance and I have a real estate license, please do not feel the need to simplify if the advice is complex.)

I just happen to have some history about your type of plan...

Many, many years ago, as a RE agent, I sold a huge old Victorian house to my parents. It was located near USC and we used it as "an animal" house -- student housing for the college students. Here's what learned over those 3 years that we had it.

1. You'd better be willing and able to do a lot of dishes. Make sure you have a good dishwasher. The students never cleaned the kitchen.
2. They all moved out every summer, so we had to make the payment during the summer vacations.
3. They are messy, noisy creatures. Some sleep days and others sleep nights. There was always someone up and making a mess in that house.
4. They have lots of friends and flash parties.
5. You can make extra money off of having coin-operated laundry facilities.
6. Upgrade your electrical system in the house. Kids have LOTS of devices and they all must be plugged in.
7. Choose tenants who have parents who pay their rent -- and get it on an automatic deposit system. The kids will spend their money on pizza and weed coupled with the saddest stories about why they can't pay this month.
8. 86 the carpeting and put vinyl flooring in the whole house. It's a lot easier to clean and you won't have to replace it every year or two.
9. Chose a house with a lot of bathrooms. You'll need them.
10. Make a place in the yard for the kids to hang out.
11. Mow your lawn and plant some flowers. It will go a long way with your neighbors.

You may have a lot of fun doing this. You can make a lot of money doing it. But, here's my advice. Have very good house rules. Clean up all the time and then clean some more. Buy something that is within walking distance, or a major bus stop from the school where they go. You don't want each of your roommates to have a car in front of the house. Make friends with your neighbors so they don't kick you out of the neighborhood.

And here's the biggie: Take most of your extra income and make advance payments on your loan so you never get caught short. Have a slush fund for major repairs.

 

[biophase]

I just happen to have some history about your type of plan...

Many, many years ago, as a RE agent, I sold a huge old Victorian house to my parents. It was located near USC and we used it as "an animal" house -- student housing for the college students. Here's what learned over those 3 years that we had it.

1. You'd better be willing and able to do a lot of dishes. Make sure you have a good dishwasher. The students never cleaned the kitchen.
2. They all moved out every summer, so we had to make the payment during the summer vacations.
3. They are messy, noisy creatures. Some sleep days and others sleep nights. There was always someone up and making a mess in that house.
4. They have lots of friends and flash parties.
5. You can make extra money off of having coin-operated laundry facilities.
6. Upgrade your electrical system in the house. Kids have LOTS of devices and they all must be plugged in.
7. Choose tenants who have parents who pay their rent -- and get it on an automatic deposit system. The kids will spend their money on pizza and weed coupled with the saddest stories about why they can't pay this month.
8. 86 the carpeting and put vinyl flooring in the whole house. It's a lot easier to clean and you won't have to replace it every year or two.
9. Chose a house with a lot of bathrooms. You'll need them.
10. Make a place in the yard for the kids to hang out.
11. Mow your lawn and plant some flowers. It will go a long way with your neighbors.

You may have a lot of fun doing this. You can make a lot of money doing it. But, here's my advice. Have very good house rules. Clean up all the time and then clean some more. Buy something that is within walking distance, or a major bus stop from the school where they go. You don't want each of your roommates to have a car in front of the house. Make friends with your neighbors so they don't kick you out of the neighborhood.

And here's the biggie: Take most of your extra income and make advance payments on your loan so you never get caught short. Have a slush fund for major repairs.

I’d like to add, rent to Grad students vs undergrad if possible!

 

[starttoday123]

I just happen to have some history about your type of plan...

Many, many years ago, as a RE agent, I sold a huge old Victorian house to my parents. It was located near USC and we used it as "an animal" house -- student housing for the college students. Here's what learned over those 3 years that we had it.

I lived in an "animal" house in college and all these points ring true for how it was haha. Were you a residential RE agent your entire career? How did you like it? I'm considering it as a career/fast lane.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[WJK]

I lived in an "animal" house in college and all these points ring true for how it was haha. Were you a residential RE agent your entire career? How did you like it? I'm considering it as a career/fast lane.

I started as an agent in 1976. I upgraded and got my broker's license. I bought 2 offices with a partner and managed them. The market crashed hard in 1980 so I started over again. I was an agent again who rented a desk. On the side, I did "flips" in the ghetto in Los Angeles. We called the Equity Purchases -- the word flip hadn't been invented. First I did houses. Then apartment buildings. And finally small commercial buildings. The hard money boys started calling me and asking to write commercial appraisals on their apartments and commercial deals. It was way before they licensed appraisers. I didn't know that girls couldn't do commercial appraising -- there was only 7% women in the field. By the time that the good 'ol boys came after me, I was already successful and playing on their turf. I wanted to join their professional organization. They treated me terribly. They changed the rules. Again. So, after my first kids left home, I decided to go get the biggest bat I could find -- it was the early 1990s. (My husband had run off and found a new bride. I was a single woman with grown kids.) I went to law school at night and on the weekends. I met a man there who was a forensic accountant. I pulled my chair up closer and asked him about what he did. I developed a big RE expert witness practice while I was going to law school. I still did my appraisals. I worked 60 hours a week and carried 9 grad units. By the end of the first year, I decided that I really didn't want to be an attorney. So, when I finished, I was already up and running. I did that until my Mom had strokes. I ended up retiring and caring for her until her death. Now, I'm a professional RE investor who has residential rentals. And I buy trust deeds on the side. I'm am in the process of getting my Mortgage Broker's license so I can start a hard money business this summer. Yes, this is my 46th year in the real estate business.
Sorry for the long answer... I've survived all the ups and downs...

 

[ooooskar]

I just happen to have some history about your type of plan...

Many, many years ago, as a RE agent, I sold a huge old Victorian house to my parents. It was located near USC and we used it as "an animal" house -- student housing for the college students. Here's what learned over those 3 years that we had it.

1. You'd better be willing and able to do a lot of dishes. Make sure you have a good dishwasher. The students never cleaned the kitchen.
2. They all moved out every summer, so we had to make the payment during the summer vacations.
3. They are messy, noisy creatures. Some sleep days and others sleep nights. There was always someone up and making a mess in that house.
4. They have lots of friends and flash parties.
5. You can make extra money off of having coin-operated laundry facilities.
6. Upgrade your electrical system in the house. Kids have LOTS of devices and they all must be plugged in.
7. Choose tenants who have parents who pay their rent -- and get it on an automatic deposit system. The kids will spend their money on pizza and weed coupled with the saddest stories about why they can't pay this month.
8. 86 the carpeting and put vinyl flooring in the whole house. It's a lot easier to clean and you won't have to replace it every year or two.
9. Chose a house with a lot of bathrooms. You'll need them.
10. Make a place in the yard for the kids to hang out.
11. Mow your lawn and plant some flowers. It will go a long way with your neighbors.

You may have a lot of fun doing this. You can make a lot of money doing it. But, here's my advice. Have very good house rules. Clean up all the time and then clean some more. Buy something that is within walking distance, or a major bus stop from the school where they go. You don't want each of your roommates to have a car in front of the house. Make friends with your neighbors so they don't kick you out of the neighborhood.

And here's the biggie: Take most of your extra income and make advance payments on your loan so you never get caught short. Have a slush fund for major repairs.

Good evening,

I plan to reside in the property, I am in the age where most people are still in college, therefore I would be living among my peers. I plan to do so in order to have a greater sense of control over the situation at the location. I noticed that people tend to take better care of the properties when the owners are nearby or within the property. Has this caused any issues or problems in your experience? Additionally, I am applying for the loan using the pretense of primary residence to be able to use the loan type that allows for no money down. I am diving into the deep end on this endeavor, this would be my first venture into actual owning of real estate.

I appreciate the tips especially with the actual features on the property. I plan on using the revenue from the tenants to assist or even cover the cost of the mortgage.

I am also going to ensure that the lease would be made out the the parents to ensure the payment is guaranteed. Is this a good approach or would this lead to legal issues?

Sorry for the late response, I was at the reserve service which allows me to qualify for the VA Loan. :^) I appreciate all the responses.

 

[BD64]

house hacking is life changing. highly recommend.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[ooooskar]

house hacking is life changing. highly recommend.

Were you able to cover the mortgage with the income that the tenants brought in, or did you have to add your won income to cover the mortgage cost?

 

[WJK]

Good evening,

I plan to reside in the property, I am in the age where most people are still in college, therefore I would be living among my peers. I plan to do so in order to have a greater sense of control over the situation at the location. I noticed that people tend to take better care of the properties when the owners are nearby or within the property. Has this caused any issues or problems in your experience? Additionally, I am applying for the loan using the pretense of primary residence to be able to use the loan type that allows for no money down. I am diving into the deep end on this endeavor, this would be my first venture into actual owning of real estate.

I appreciate the tips especially with the actual features on the property. I plan on using the revenue from the tenants to assist or even cover the cost of the mortgage.

I am also going to ensure that the lease would be made out the the parents to ensure the payment is guaranteed. Is this a good approach or would this lead to legal issues?

Sorry for the late response, I was at the reserve service which allows me to qualify for the VA Loan. :^) I appreciate all the responses.

Have the parents "guarantee" the lease. Go see an attorney for the exact language and to make it is enforceable. The parents don't want their little Johnnie or Susie out on the street.

Yes, you must live there. Your loan requires that.

Yes, you will have much better luck by being there.

I bet you will need to provide some of the furniture for the rooms. Use the KISS theory. A bed. A dresser. Just the basics. it saves wear and tear on your house caused by moving furniture in and out.

You might also think about providing lockers in the bathrooms for personal items (like they use at schools) -- if you have the space. Buy them used. Your students can provide their own locks. It will cut down on the bathroom messes.

The way to look at it is by finding your "sticking points" with managing the property. What are the problems? What do your students complain about? What can you do better?

Your point of view must be finding the good for the whole. There will be disagreements. There will be personality clashes. Your job is to be the adult in the room. It's being the moderating factor. After all, the guy who is going to own the joint. Only use your power when you must. Otherwise, be a positive influence.

Now, here's the good part. You have an opportunity to create lifelong friendships with the students and their parents. I bet there's a business opportunity in there or two -- waiting for you.

 

[starttoday123]

By the time that the good 'ol boys came after me, I was already successful and playing on their turf. So, after my first kids left home, I decided to go get the biggest bat I could

That’s amazing you've had such a long career in RE already and how you met your husband too! You hear so much about people quitting RE or going back and forth. Wishing you fantastic results from your new business this summer!

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[WJK]

That’s amazing you've had such a long career in RE already and how you met your husband too! You hear so much about people quitting RE or going back and forth. Wishing you fantastic results from your new business this summer!

Thanks. I've had an amazing career in real estate. A wonderful lady, who mentored me, got me started. Alice told me it was a good idea all those years ago. She was right. I'm so grateful that Alice helped me to make good decisions when I was young.

The main thing I liked, and still like, about RE was that it is a level playing field. I got paid a percentage of the commissions I generated. Period. End of story. I produced and I got paid. As I became more successful, people fought over hiring me. They offered me better and better commission splits. It was during a time when women's wages were pretty dismal. I LOVED getting paid like a man. And every different aspect is like that. You do the work -- make the deals -- and you get paid for your time, attention, and expertise.

There have been a lot of ups and downs in the business. Each time the business cycled, or my life changed, I adjusted my practice to learn new aspects and niches. I pivoted in order to support myself and meet my responsibilities. I've made fortunes and lost them. Then I've done it again. I've raised two families. I supported my mom for the last 10 years of her life. And I've lived a very interesting life. Real estate has allowed me to be self-employed for the last 46 years. I've set my direction and rowed my own boat for all of those years.

 

[BD64]

Were you able to cover the mortgage with the income that the tenants brought in, or did you have to add your won income to cover the mortgage cost?

The first property I househacked had a $1400 mortgage, I brought in about $1300 in rent from 2 bedrooms. One of them I rented below market to help someone out, otherwise it would have been break even. After splitting utilities & averaging out maintenance costs during my time living there, housing costs were ~$200/mo. I paid off more than $200/mo in equity on the loan so really every month I ended up making money.

I sold that property after 1.5 years for over $60k more than I bought it for. After including the fact that I had ~$20k-$25k in rent savings that property ended up putting $80-$85k in my bank account.

I used that money to buy another 2 properties, including another house hack.

The 2nd & current house hack has netted me ~$700/mo in cash flow after all expenses. Since buying it the home has appreciated ~$30-$40k.

If that doesn't convince you idk what will.

 

[ooooskar]

The first property I househacked had a $1400 mortgage, I brought in about $1300 in rent from 2 bedrooms. One of them I rented below market to help someone out, otherwise it would have been break even. After splitting utilities & averaging out maintenance costs during my time living there, housing costs were ~$200/mo. I paid off more than $200/mo in equity on the loan so really every month I ended up making money.

I sold that property after 1.5 years for over $60k more than I bought it for. After including the fact that I had ~$20k-$25k in rent savings that property ended up putting $80-$85k in my bank account.

I used that money to buy another 2 properties, including another house hack.

The 2nd & current house hack has netted me ~$700/mo in cash flow after all expenses. Since buying it the home has appreciated ~$30-$40k.

If that doesn't convince you idk what will.

Good morning,

Got it, I am trying to hedge the upcoming inflation and overvaluation of stock with a property of consistent cash flow. If you are able to cover most of the mortgage, that takes a bunch of pressure off of the financing.

If you have a signed lease, you are able to report that as income for another loan, correct? That would allow for the easier acquisition of another property.

I live in southern California, where the barrier to entry on a home is quite high, I would assume snowballing into more property is more difficult here.

Thank you
-Oskar

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[BD64]

Good morning,

Got it, I am trying to hedge the upcoming inflation and overvaluation of stock with a property of consistent cash flow. If you are able to cover most of the mortgage, that takes a bunch of pressure off of the financing.

If you have a signed lease, you are able to report that as income for another loan, correct? That would allow for the easier acquisition of another property.

I live in southern California, where the barrier to entry on a home is quite high, I would assume snowballing into more property is more difficult here.

Thank you
-Oskar

My first property was in Boulder county, the second was 10 mins out from downtown Denver so I get where you are coming from with the barrier to entry. One of the biggest strengths of house hacking is that you are able to take advantage of residential financing. For first-time homeowners you can use an FHA loan for 3.5% down, VAs can get 0% down.

I can't speak to your market specifically but I believe it is possible to make it work anywhere, you just need to do your homework. Regardless of your market, yes, the snowball is real: The more you make/save the quick you are able tor reinvest. Property 1 helps buy property 2 and so on.

 

[JordanK]

If you want to save some hassle you could pretend to be the 'property manager' or 'just renting the place'. I have a lot of tenants across a number of properties but in my own personal house hack living situation find it better to do this.

If there is ever any disputes or rent issues you can just default to 'let me check with the owner to see if they'd be happy with that' or 'let me see what the owner will do/wants'. This has gotten me out of many situations where I'd either fall out with the live in tenant over something or they pull the 'hey we're bro's can I pay the rent late this month' situations.

Obviously, it depends on local market laws etc on whether this is a good way to do things. Here it does.