House hacking is a real estate investment strategy that involves buying a multi-family property and renting out the other units to cover your housing expenses. It’s an effective way to reduce housing costs, and for some, it could mean living for free. In this blog post, we’ll discuss how to house hack and share an example of how Graham Stephan is using this strategy.
The first step to house hacking is to save up for a down payment on a multi-family property. Depending on where you live, you may need to put down a significant amount of money. However, in many parts of the United States and Canada, you can get away with putting down less money. Once you’ve saved up enough, you can buy a duplex, triplex, or fourplex and move into one of the units.
By living in one of the units, you can take advantage of owner-occupant financing, which typically has lower interest rates than investment property financing. This can help lower your debt-to-income ratio, making it easier to qualify for more expensive rental properties in the future.
Now let’s look at an example of how an investor named Graham is using house hacking to live for free. Graham lives in Los Angeles, which is an expensive area to invest in real estate. He bought a duplex, renovated it, and moved into one of the units. He then rented out the other unit, which helps offset his housing expenses.
Graham’s total monthly expenses for the duplex are $3,100, broken down as follows:
Mortgage (including principle and interest): $2,200
Property taxes: $585
Random expenses (gardener, etc.): $200
Because this is a duplex, Graham is able to rent out the other unit to help cover his expenses. Even though the unit is rent-controlled and below market value, he still gets about half his expenses paid off every month. This means he’s paying just $1,550 per month to own a multi-family property in Los Angeles, which is significantly cheaper than if he were to rent a similar property.
While Graham’s example is specific to Los Angeles, the house hacking strategy can be applied in other low-cost housing areas outside of expensive cities like San Francisco and New York. By reducing housing expenses, you can free up more money to invest in real estate and build your portfolio.
In conclusion, house hacking is a powerful way to reduce housing costs and live for free in some cases. By buying a multi-family property and renting out the other units, you can offset your expenses and build wealth through real estate investing. Remember to save up for a down payment and take advantage of owner-occupant financing to lower your debt-to-income ratio. With the right strategy and a bit of hard work, you too can achieve financial freedom through house hacking.