Get paid to live for free in your own house. I want to teach you how to Hack a House. Live for free and build cash-flow. This will change your life and it will make you wealthy. I am talking about House Hacking. The ultimate life hack. It is and should remain one of the cornerstones of frugal living and quintessential to early retirement. It allows a person or family to reduce their living expenses, specifically related to their housing situation, to near 0 – if done right. The concept of ‘House Hacking’ is simply where you purchase a property and rent a portion of it out. You use the proceeds from renting portions of the property out to cover the housing expenses and more. It can be done with a single family home where you rent out bedrooms or the basement suite, and it can be done with multifamily properties (duplexes, triplexes, fourplexes etc.). This is the House Hackers Guide to getting paid to live for free!
Use your house to create wealth, not consume it.
For instance, you could buy a 3 bedroom house and rent the 3rd bedroom out. You could buy a duplex and live in one of the units, with a roommate for bonus points, and rent the other unit out. Essentially, you let other people pay your living expenses.
House hacking frees up a ton of cashflow. It can drastically reduce your expenses, and if executed well, it can allow you to live entirely for free. Yes, I am talking covering all of your expenses, not just your housing expenses. Your food expenses, your transportation, your cell phone, etc. It is the corner stone of creating wealth in that it allows you save hoards of money and achieve insane savings rates. Not only that, but it turns your house (normally referred to as a liability or expense) into a cashflow producing asset that can service itself. I normally wouldn’t include my house as a cashflow producing great asset but because I house hack I definitely do include it.
How Do you House Hack?
1. Determine if you can afford a house.
- What sized house? What area? Can you get a mortgage? Do you have steady job? Do you have a down payment saved up? Do you have any savings? Can you borrow from family or friends to buy? Can you do a 5% down or 0 down deal?
- If you cannot afford a house, start with Rent Hacking. Rent Hacking can be more efficient than House Hacking in many cases and even if you can afford a house, you should ask yourself if you want to. Home Ownership is A LOT of work and stress to maintain and can require significant capital to get started.
2. Buy a House.
- Find a Screaming Deal!
- What makes a good deal? CASH FLOW POTENTIAL. You want the cash flow to price ratio to be really good. Ideally aim for 1% or 2% rule depending on your location. That is, a 100,000 house should be able to rent out for $1000-$2000/month to meet the 1% and 2% rules respectively. If it doesn’t fit the formula it isn’t a screaming deal.
- Appreciation is always a bonus and never to be counted on.
- Pick a location. Zero in on that location. See every deal on the market in that location. Bonus points if its close enough to walk or bike to work as you’ll save big on transportation costs and be rich that much sooner.
3. Fund & Close your Deal.
- Shop lenders for the most affordable mortgage.
- Get your down payment together. Use your RRSP if you are a first-time home buyer. Unload your TFSA. Borrow from friends and family. Get it all into cash to put down on the property.
- If you can’t get a mortgage with an A lender perhaps try Rent Hacking until you can, but you could also try a private mortgage from a B or C lender.
- Pick a great real-estate lawyer who is affordable and that you can trust to close your deal right.
4. Manage your Property
- Renovate your property, if necessary, into its best use (this means the best way it can cash-flow). That could mean adding bedrooms, bathrooms, or entire basement suite finishes.
- Outsource the work you don’t want to do affordable sub-trades.
- Find quality handymen you can trust. Always ask friends for referrals and get 3 quotes for every job.
- Outsource the work you don’t want to do affordable sub-trades.
- Rent out the property spaces you aren’t living in
- Screen, screen, screen. Screen your potential tenants like your life depends on it. To save you time I’ve linked to the Biggerpockets Ultimate Tenant Screening Guide. Biggerpockets is awesome resource you need to dig deeper into now that you are a landlord. You might even find you like it and want to acquire additional rental properties, as I did.
- Run it like a business. It’s not all for fun, although you might meet some of the best friends you’ll ever have through House Hacking.
- Create systems and processes to handle problems as they arise. Stick to your systems in the event of a problem.
House Hacking is like a gate-way drug to becoming an income property real-estate investor. Once you get a taste, you might just want more.
My Experience with House Hacking
I consider house hacking one of the key success factors of my wealth acquisition story. My first house was purchased at the age of 19 in an up and coming neighbourhood as a 3 bedroom detached brick story and a half. My wife (then girlfriend) and I lived in the properties upper Master Bedroom (yes, we spoiled ourselves as students), and rented out the other upper bedroom, and main floor bedroom as well as the entire basement suite I put in. The basement suite conversion was my first renovation where I learned to swing a hammer. In total we were collecting nearly $1500/month in rent which was more than the mortgage, property taxes, utilities, and insurance leaving us a few hundred to throw towards our food cost. In total, we lived with no food or housing costs while finishing university and college. We stayed in this property until we built our dream house (which was actually a big mistake that we corrected 1.5 years after building it by selling it!).
My Current House Hack:
Though I am now wealthy and retired I still enjoy house hacking as a way to live more efficiently, in a smaller footprint. I live for free. We currently enjoy living in our Duplex (in a great family area of London) with an additional Tiny House guest house in our backyard that we rent out on AirBNB. We live on the main floor of our duplex in a beautiful, modern, renovated, open concept 3 bedroom unit (1000 square feet all on one floor) with a walk-in pantry hidden behind a behind a sliding barn door. It’s paradise. We have a massive quarter acre fenced in backyard that goes on for days and has a nice hill for our daughter to play on, a nice deck in the back and is entirely treed in. It is essentially our dream house for the price that we paid only $175,000 for the property before a ~$50,000 renovation. It is literally around the corner and a stones throw from our new build house that sold for well $472,000 earlier this year. The average house price in London, Ontario is around $300,000-$350,000 and likely a little higher in my area of town. So, it is not impossible to find an affordable house hack! I’ve done it now with several properties.
Anyway, back to my current house hack. We currently collect $948/month from the lower unit and approximately $800/month from the Tiny House on AIRBNB (assuming 75% occupancy). Our mortgage, property taxes, utilities, and insurance are much less than this and so we actually have 0 housing costs. Yup, it costs us 0 to live in our dream house. We never hear the other tenants as I triple insulated the floor between the basement and our unit and they have an entirely separate entrance. It’s the dream and we’ve been able to architect it in a way that is very cost effective.
We’ve been asked by friends and family why we sold the new, bigger house in leu of a smaller duplex and the answer is clear – What would you prefer? Enough money for a trip somewhere exotic every single month, or a big house you only ever use 30% of? For us, the answer is clear. We will continue house hacking. It allows us to live on well under one quarter of what we can bring in from our portfolio passively and ensures we will be to live well on a 1-2% safe withdraw rate.
Who is currently house hacking? How are you house hacking? Who is looking to House Hack?