The MOST Underrated Way to Get Started in Real Estate in 2023

David:This is the BiggerPockets Podcast show, 745.

Henry:I love, obviously love house hacking as a strategy and oftentimes when I’m talking to investors, the main objection that I hear is, “I don’t want to share walls.” Or, “My spouse, I can’t. I’m not going to get my spouse to share walls.” Or, “I don’t want to live next door to my tenants.”I’m living in my dream house right now because I bought a house hack for two years. Two years of uncomfortability, one year of uncomfortability could change the trajectory of your life. Do you want to be wealthy or do you want to be comfortable? And if you want to be comfortable, why are you even here?

David:What’s going on everyone? This is David Greene, your host of the BiggerPockets Podcast here today with my co-host, Rob Abasolo and Henry Washington as we break into the most important phenomenally underrated strategy you cannot afford to miss in 2023. Yes, that’s right. We are talking about house hacking.Today, we’re going to cover what you always need to keep in mind if you’re house hacking, and how things might have changed in 2023 causing you to look at this a little bit differently. We get into affordability, risk, cash flow, why experts are doing this, why more experts should be doing this. And for those of you with capital and experience, make sure you tune in because I think everyone should be house hacking throughout the real estate investing journey. I know I do. And so do others like James Dainard, Brandon Turner, Mindy Jensen, Rob Abasolo, Henry Washington, and more.Today’s quick tip. Don’t just house hack, adopt house hacking as a mindset. There are a lot of ways that you can find expenses in your life and you can either eliminate them or turn them into income. I was blown away the first time that I heard Amazon would do this, is they would literally look at their expense sheet and say, “What do we spend money on? Well, we’re spending a lot of money for servers to host our thing. Well, why don’t we start our own company where we have our own servers and then hey, we can rent them out to other companies that need them.” That’s a company that became AWS.That mindset, that way of looking at expenses and asking, “How can I turn them into income?” Can change your financial situation for the future. Train yourself now to start thinking like that.Today’s show, we’re going to get into three things, we’re going to cover in today’s show and more. Why house hacking in 2023 is one of your best options? Both the benefits and the opportunity that you may not be thinking about. How you can get started and why this is not something just for beginners? Why you shouldn’t be stopping at just one or two?House hacking isn’t just about houses, it can unlock capital everywhere. All right, Rob, Henry, anything you guys want to say before we get into the show?

Rob:I think this is one of those episodes that spouses are going to send to their spouse and they’re going to say, “See? See? Rob, Henry and David said to do it, we got to do it.” And I think a lot of people will kind of change their tune on their stance on this.

Henry:I agree. I think you hit the nail on the head when you kicked us off by saying, “Underrated.” I can’t reiterate that enough how underrated of a strategy this is and people do, they stick their nose up at it either because they’re experienced and don’t think they need to do that anymore or because they don’t want to deal with some of the uncomfortability or inconveniences that come with it. But I’m telling you, stick around and hear us out. This is something we all need to continue to do.

David:Yes, sir. And you need to understand the cost of not doing this. We are talking about hundreds and hundreds of thousands of dollars if not, millions of dollars in money that you could be making and saving in the future. And Rob tells a story about how his first deal turned into his first house hack, which turned into a million dollar empire that he’s sitting on now built at the feet of real estate.And after your spouse does listen to this and they finally agree and the weight is lifted off your shoulders and the two of you are approaching real estate together and you’re full of gratitude, simply DM me on Instagram for my mailing address and you can send me the gift that you no doubt will want to, after they listen to this show.All right, let’s get into it.All right, welcome my friends, Rob and Henry to our show today. We are going to dive into probably the most oatmeal bran muffin, boring strategy in real estate yet by far my favorite strategy. I cannot stop talking about it. I’m an evangelist for this. I do long distance investing. I do BRRRR investing. I do short-term rental investing. I do multifamily. I do commercial. I do all of it and I still can’t stop preaching the gospel of house hacking. It’s just way too good.So house hacking for those that have been living under rock and haven’t heard, is turning your house into an investment property. Basically it’s taking the place you live and using it to journey income. There is a host of benefits to using it and we are going to talk about why 2023 is your year to house hack. Rob, what’s your thoughts on this?

Rob:I am a big fan of house hacking. I have said for many years that I attribute all of the wealth that I’ve ever built, because of house hacking, because I was able to really sacrifice the short-term comfort for long-term gain.I shared my space with strangers, with friends. I’ve rented, I’ve Airbnb’ed tiny homes on my property, little studios. I’ve mingled with people. I’ve had awkward conversations with people, but all in all, the rent that I’ve been paid from house hacking has saved me from ever paying a mortgage and I could not be more grateful for this niche in real estate.

David:Awesome, man. Henry, what about you?

Henry:Man. House hacking literally changed my life. I have multiple long-term rental properties and I can tell you without a shadow of a doubt, that I am literally sitting here right now in my dream home that we bought because we were able to house hack for two years.I can also tell you that, even if I had never bought a single other rental property for my portfolio, I still could have got into this property and lived here and afford to live here just because of the house hack I did alone, changed my life.

David:That’s awesome, man. Now, house hacking helps you in so many ways, one of which is it covers your housing costs, why you’re trying to break into real estate investing. So few investors understand how important it’s to actually manage their own money, have a budget, track your expenses, know where your money’s going to be going. They just think, “No, no. I want to buy real estate estate so that I can spend money on whatever I want.” And it rarely ever works out like that.When you start tracking your income, one of the first things that you’ll find is your biggest expense is housing, right? So it’s very common to get these books about saving your way to being a millionaire over 700 years of putting your money in the stock market and it’ll grow. The problem is that whole save a cup of coffee every day, don’t spend five bucks model. It’s such a small chunk of your income that if we were Methuselah and lived to be 900, that might actually work. By the time you hit four or 500 years old, you’d have a lot of money, but we die before that. There needs to be something more aggressive.Eliminating your biggest expense, your housing allowance is a far, far sounder and wiser way to get money saved so that you can get into real estate. And the problem is when you don’t house hack, you’re giving up more than just what the property is going to be worth. You’re giving up all the future properties that you would’ve made.See, real estate works in this exponentially progressive manner, whereas snowball forms. You get your first deal, you create equity, you pull the equity out, you buy three more. Those get even more cash flow, you save that and equities growing, you reinvest the cash flow, you reinvest the equity. Now, you went from one to three to eight and it exponentially grows.That’s why you hear people like us that have been investing for five to 10 years that are having conversations that are, it just seems so easy to us. Well, it wasn’t when we were starting. It’s hard for every snowball to pick up steam when you first get started. When you don’t house hack, you’re giving up the future 10, 20, 30 years down the road of tens of millions of dollars that real estate will build for you.There’s several ways that you can get involved. There’s the low down payment options. This is probably why I like it the most, it requires less money. FHA loans or you put 3.5% down if you’re having trouble coming up at the rehab and you can find a contractor that’ll work with it. There’s a 203(k) loan, which is like an extension to an FHA loan where you can borrow a 97 and a half percent of the construction cost as well.And when you’re only putting down a small amount of money, this is why I think it’s even better than BRRRR when you can pull it off. The value of BRRRR is that you get your money back out of the deal. Well, if you only put three and a half percent into the deal, there’s nothing to get out. You don’t need to go through all the headache of finding this fixer upper property and going through a construction and hoping the appraisal comes in.Doing all the things we do to make real estate work, it’s easy. You just buy the best house in the best area that you can afford with as much money as you can get pre-approved for and put as little down as possible and boom, you’re started with real estate investing. Anyone can do it, people can do it, families can do it.If you want to get investing in real estate, but your spouse isn’t completely on board, you can often get them into this as opposed to, “Let’s go put 25% down on a $500,000 house. Let’s take our whole a hundred thousand dollars nest egg.” Dump it in one property and hope that it works out, versus, “Yeah, let’s just take out of that a hundred thousand dollars to buy a $500,000 property. We only need about 17 grand, 17,500.” That’s a much easier pill to swallow than the full a hundred thousand dollars.So that’s what I think about it. Do each of you have anything you want to share on just how people should be looking at house hacking in 2023?

Rob:Well, what I like about house hacking is that you can get very creative with it. So when you talk about what the actual definition of house hacking is, it’s renting a room or a space or a unit on your property to subsidize your mortgage. That’s ultimately what it boils down to.And so a lot of people will say, “Well, I don’t really want to. I don’t want a stranger in my house living with me. I don’t think I can do it.” I think I’ve got some thoughts around that. I think Henry does too, but you don’t have to let people live in your house.When I bought my house in LA, it had a 279 square foot apartment studio underneath it, and I Airbnb’ed that studio for a long time and then I rented that to a long-term tenant. I never had to see those guests or those tenants, and they subsidized 50 to 75% of my mortgage, of my $4,400 mortgage. And then I built a tiny house in my backyard, and again, that’s not connected to my home. I would see guests walking in and out of that house, but there are just so many ways you can break into it.I talked about this on another episode where I actually rented an Airbnb, that was an Airstream in someone’s backyard that they craned back there and they were charging a hundred bucks a night and that subsidized their mortgage. So you can get super creative with it and depending on how introverted or extroverted or social you are, I think you can sort of adjust what house hacking means for you.

David:All right. Henry, let’s move to you. What are some ways that people can get started if they want to get into house hacking?

Henry:Yeah. Absolutely. I think the best way, what I like about what Rob said is you’re absolutely right, you can get creative. But the best way to get started is obviously you need to find a place that you’re going to want to live and house hack.So it’s all about that property search and it’s all about, to me, it’s about getting creative because if you don’t want to live in the same direct home as somebody else, then you look for a duplex, quadplex, multifamily. If you don’t want to live in a duplex, quadplex, multifamily, you can look for properties that have mother-in-law suites or in-law quarters or some sort of other detached type of living situation.So whatever your comfort level is, there is probably a property out there that will fit your comfort level and needs. You just have to be diligent and smart and creative about how you’re searching and what you’re searching for. So it’s about that open communication with your real estate agent who’s helping you to look, setting up the right keywords with your searches.I was fortunate enough that my house hack was a whole separate house behind mine, so didn’t have to share the walls. And then what Rob said is also true. The true definition is just monetizing that house to subsidize your mortgage. And so people hear house hack and they go, “I don’t want to be next to my tenants.” Or, “I don’t want to share walls.” But that doesn’t have to be the case. Just like Rob said, you can also look at something like, I call them super short-term rentals.You can look at something like a platform like Peerspace, where you just rent maybe a room that you’ve curated to look a certain way or maybe an office or some other small space, where you can rent that space by the hour to somebody who wants to come in and shoot a commercial or a video or all kinds of things. People look for curated spaces for hourly rates.There’s even ways where you can just ranked out random space in your garage for other people to store their stuff. There’s so many ways to house hack. So being able to find a property that fits your comfort level and your needs, is huge.

Rob:Yeah. I think there’s a website called Rooster. I don’t know if they’re still in business but, and it is basically Airbnb for storage where you say, “Hey, I got a whole garage. Come put your storage into my garage and pay me $75 a month.” Or something like that.And I was like, “Man, they’ve really thought of everything.” You can really rent out anything in your house, and it probably makes sense. They’re going to start renting out fridge space here pretty soon, I feel.

David:I’ve had clients that bought a house with us and they’ve rented out the pool in their backyard. People would pay 150 bucks for two hours to go swim laps or teach their kid how to swim. I’ve seen people put little mini putting greens in their backyard and people will pay to go back there and use that. They’ll rent out the RV access and someone will pay a couple hundred bucks, kind of like a mobile home park to put a trailer back there.As we were talking, Henry, I was thinking about how there’s people that will teach, make 200 cold calls or drive around for seven hours looking at houses and mail a letter to someone with a shabby yard, but they’re not willing to look on Zillow for a property that has more bedrooms or more space in the backyard that they could use. Unfinished square footage that could be very easily converted. I think house hacking is, it’s the one of those things that’s so obvious that you just look right over it.Now, it can’t be that easy, it has to be harder. Let me go try to find something that’s more difficult. What do you guys think about… Oh, no, first, Henry tell us about your Washington Wealthy Walls principle.

Rob:The WWWP.

Henry:WWWP. So we here at the WWWP, our firm believers in that wealth is not built inside of your comfort zone. No one ever builds wealth in a comfort zone. You’ve got to get at least a little uncomfortable if you want to start building wealth.I love, obviously love house hacking as a strategy and oftentimes when I’m talking to investors, the main objection that I hear is, “I don’t want to share walls.” Or, “My spouse, I can’t. I’m not going to get my spouse to share walls.” Or, “I don’t want to live next door to my tenants.” And those things are or can be viewed as minor inconveniences.Why are you looking into a way to build wealth? To replace your income, replace your job, get to financial freedom. These are tall tasks, life-changing tasks. And you’re concerned about sharing a wall for a short period of time? Are you kidding me? You’ve got to get a little uncomfortable. Who cares if you have to share?I’m living in my dream house right now because I bought a house hack for two years. Two years of uncomfortability, one year of uncomfortability could change the trajectory of your life. Do you want to be wealthy or do you want to be comfortable? And if you want to be comfortable, why are you even here?

David:That’s a great point. Rob, one of the big issues in 2023 that we’re all struggling with, is affordability. Sellers don’t want to drop their prices to the point that we think it’s a great deal as a buyer, but interest rates are so high that even as prices come down a little bit, they’re still not at a point where they’re going to cash flow really strong or sometimes at all. So there’s a bit of a stalemate. What do you think about house hacking in 2023 as a solution to this affordability standoff?

Rob:Personally, I think that house hacking is the most important pivot that real estate investors can start to consider for 2023 because you’re right, things are really expensive, and now I do think that sellers are starting to drop prices a little bit, but even with that, the interest rates are still really high. So even if a seller drops their price $50,000, interest rates being what they are, still makes that a relatively expensive place to live, relative to what it was a year ago.And so I think people now, are at this standpoint, that at the fork in the road, “Do I want to live in a house and sacrifice a little bit of comfort?” Or, “Do I want to keep renting?” And I think for the people in the former group who are willing to rent a room to subsidize the mortgage, it can effectively make it significantly more affordable.Let’s say that you’re talking about a $3,000 mortgage, that a year ago might have been $2,300 with lower interest rates. Well, if you’re willing to sacrifice some of that comfort and you can get a house, that you can rent a room out for a thousand dollars, now, you effectively have subsidized it to where it is a little bit more normal to what prices were a year ago.So I think people really have to start opening their minds to this, especially for the people that are very impatient and have been waiting a long time to get into a home and are really frustrated with the interest rates. We got to do things that make us a little uncomfortable to get ahead.Just like Henry was saying, “Do you want to be uncomfortable? Do you want to be wealthy?” And I think most people that are in this space and that are listening to this podcast right now, I think we all have the similar mindset that we want to build wealth.

David:Yeah. And I think there’s a huge contingency of people listening to this right now who’ve got some money saved up, who’ve been waiting for the market to crash. They want to buy real estate. They know that they don’t want to be a renter forever. They’ve already committed to that. They don’t know when. “When do I jump in?” It’s like game of Double Dutch and you’re like, “Urgh.” You’re waiting, you’re watching that rope go. You’re trying to time it, but it never quite feels like the right moment. And then oftentimes the market can take off on you before you realize what happened and you’re like, “Oh, that was my window right when I blinked.”One thing I love about it is the hesitation that you get to buy real estate when you’re not sure what the market’s going to do is you feel like, “I got one shot.” You’re Eminem. It’s the beginning of eight mile. You’re sitting there with vomit on your sweater, you’re super nervous. You’re like, “I only get one chance to go crush this.” And that’s massive pressure.When you’re house hacking, you take that a hundred thousand dollars, $50,000 savings, whatever it is that you’ve earned over time. And you only have to spend a small chunk of it. You are decreasing your risk and preventing yourself from spending your entire nest egg on one deal at the wrong time. Instead of spending the whole hundred grand, you’re spending 17,000 of it, which you could save back again over a period of time.So that it’s not like it’s the end of the world if you jumped in too soon. It’s better that you actually got the property. And then when you’re extending that over the next 30 years, there was no perfect time. The perfect time was 30 years ago. When you’re looking at it in the moment, you’re really trying to get the timing right. When you’re looking at it over a longer period of time, it doesn’t matter quite as much.And so when you’re house hacking, you’re reducing your risk of even buying in at the wrong time, because you still have a lot of capital for it to buy another one next year to buy another one next year, versus when you’re going in there trying to buy that perfect Airbnb, you got to put 25% down on the deal, then you got to dump the money into furnishing it. You can run out of cash. Rob, what say you?

Rob:Well, let me ask you this, David. If you’re going the FHA route and you’re putting down three and a half percent, can you tell me a little bit how often can you do that? What does the FHA guideline say? Can you buy a house every year or is it every two years?

David:You can buy a house every single year, but you can only have one FHA loan at a time.

Rob:Okay.

David:So you’ll get an FHA loan, you’ll put three and a half percent down. The next year you’ll just use a 5% down like a regular conventional loan, and then maybe you can refinance out of the FHA, when you have more equity and then use the FHA on a future deal. And this is so important in 2023 because we don’t know what the market’s going to do. That’s what I’m getting at. It could go down. It could go up. There is no sound advice we can tell you guys because no one knows.We don’t know what the fed’s going to do. We don’t know what the Biden administration’s going to do. We don’t know what the next president administration’s going to do. But we know that if you don’t buy real estate at all, you never actually get out of your situation. So this to me is like the perfect medium.You don’t want to spend all your money and hope that you bought in at the right time, but you don’t want to do nothing and just keep watching as life gets away from you. So you reduce your risk by taking on more discomfort just like Henry said. You rent out rooms to people, maybe you got to deal with some noisy walls, you learn the fundamentals of real estate, but you put as little down as possible to get as much real estate as you can.

Rob:I mean, ultimately my personal belief for house hacking, it’s not about printing money and making gobs of cash. I just genuinely feel that house hacking is about getting out of your mortgage, because the faster you can get out of paying for your mortgage, the faster you can start saving that money and compounding it over time.So if you’re able to get into a home, let’s say that $3,000 mortgage example I was talking about earlier, and you’re able to get two or three roommates in that home that pay your $3,000 mortgage, what have you done? You have saved yourself $36,000 a year that you would not have otherwise, and now you can use that $36,000 to invest in real estate, in some other capacity.And we just did an episode, I don’t know if it’s aired yet, that talks about how to get into real estate for $10,000. 36,000 bucks, you can do all the things we talked about three times, three and a half times.

Henry:I’m so glad you brought that up, Rob, because that was exactly where I was going to go next. I talk about house hacking changed my life and it did, but what really changed my life was the amount of money that I was intentional about saving because I didn’t have to spend it on the mortgage.We actually took what we were currently paying in our mortgage before we bought that house and put that up against what we then had to pay or not have to pay by doing the house hacking. And we were intentional about continuing to make that mortgage payment we were used to making. We just made it to ourselves in a savings account, and we could watch that money grow. And as we watched that money grow, it triggered the chemicals in your brain that want to continue to see that grow, and so every time we found some extra money, we were throwing it in the savings account.Just by doing that house hacking and seeing that money grow, it helped us to get more creative with more saving, that helped us save up the money that we could then use to invest in another property. So it’s really, yes, house hacking is a phenomenal strategy, but if you’re not intelligent or diligent about the savings that the house hacking provides, then you’re doing yourself a huge disservice.

Rob:Yeah, it’s basically meaningless at that point, right?

David:All right. So we’re all on board with house hacking as the best strategy that we can think of in 2023. It’s a combination of the lowest risk and the highest returns. It also sets you up to buy more real estate in the future, hopefully when the market crashes and we all want to jump in.Now, you’ve got all this money set aside that you’ve been able to save from the examples that Henry and Rob both provided. So when it comes to getting started, Henry, what are some things that people need to know about underwriting the deal, what it looks like to get your first property? Et cetera.

Henry:Yeah. I mean, if you’re shopping for a home, people are very familiar with shopping for the home process. It’s very similar. You’re just shopping for a home that’s going to meet your particular house hacking requirements. So you need to connect with a real estate agent, preferably one who’s either worked with investors before or understands the concepts of house hacking, so that they’re sending you deals that make sense to kind of save you the time of waiting through lots of listings that aren’t going to make sense for you or your goals.You want to also get pre-approved for the loan product that you are going to use, to be able to buy that property. So you can know how much you are going to have to put down or how much you are able to get approved for. Now, there are some caveats to that as well, because there may be some education that you have to provide to either your agent or your lender on the process or what they’re looking for, because there are multiple loan products for this, and not every lender is familiar with the types of loan products that you can use to do this.And so you do need to do some of your own education, but you want to make sure that you’re working with people who, if they don’t understand, are open to you educating them. I know, that you have this, you are in the mortgage industry David, what do you think about being able to connect with the proper lender to meet your house hacking needs?

David:Well, you want a lender that has worked with people doing the similar thing before, because a normal lender can get you a loan, but now you’re sort of on the hook to figure out what pieces you might not be aware of.So there are different down payment requirements for duplexes, triplexes and fourplexes and single-family houses. That wasn’t the case a couple years ago. If your lender isn’t aware of that or doesn’t tell you that, you’re like, “Oh, I’m pre-approved for $500,000.” And then you go find a duplex or a triplex that’s 500,000, they go, “Oh no, those you got to put 10% down or 15% down. It’s not like a single-family home.” You did all that work. Now, it’s not going to be helping you.There’s other lenders that can propose creative solutions. So you find a property and you don’t quite have enough money to buy it and they say, “Well, if you can get a gift from a family member, you can use that for the down payment.” You might not have even known that was a possibility if your lender didn’t bring that up to you.And then you also have the good lenders, like how we train ours. They’re going to look at your other assets and they’re like, “Well, you got an FHA loan on this property you bought seven years ago, that you’re at a 5.75 interest rate. We can refinance you out of that, get your PMI dropped off of it.” It’s called something different on an FHA loan, but it’s the same idea as PMI.“Save you some money there. Maybe your rate goes from 5.75 to 6.25, but your payment’s actually less because you don’t have PMI. And you can pull a little bit of cash out of that property and now you can use an FHA loan on the next deal.” And you go from like, “Oh, how am I going to do this?” To, “Oh, that’s super simple and there’s other benefits.”

Rob:Well, isn’t there an opportunity as well to use the rents from a house hack towards your DTI? I don’t know… What are the rules there? Because I know that probably you can’t use rents from a room, but if you bought a duplex, couldn’t you apply the rents that you’d get from that duplex towards your DTI?

David:They kind of swing back and forth on if you’re allowed to do it in a multifamily property. Most of the time they don’t want you to. But what you can do is buy a house as a house hack, move into a new house next year, and now you can use the rents from the first one to help you qualify for future ones.

Rob:Got it.

David:So you may not be able to do it on every individual house, but when the minute you get your second one, you start to get that snowball effect we were talking about and everything gets easier for you with progressive deals.What’s your guys’ thoughts on how they can use BiggerPockets calculators to help them figure out what their payments would be on the property in case their agents aren’t David Greene team agents that are experienced and helping run numbers for them?

Rob:My thoughts are, they should use it. It’s a very easy calculator to comp out a deal. Put in the numbers, put in your price, put in the rent, and it’ll split out basically if it’s a good deal or not. But it’s a very intuitive tool. I think you can go over to…

David:biggerpockets.com/calc.

Rob:And use it for free. I think you get several uses for free before you have to make an account or something like that.

David:That’s right.

Henry:It’s funny because this sounds like a shameless plug, but it’s not. Before I was ever associated with BiggerPockets, I was using that calculator. I still use those calculators today. They’re there because they’re good. So just use them.

David:They’re easy. They just tell you exactly what to do and you don’t know what to do there’s a little question mark, you’re like, “Oh, that’s what that’s asking me. Thank you.” That’s what BiggerPockets does. We make things very easy for people that want to complicate it.The highlight that I want to that take out of this how to get started here, is the goal is not to create a lot of cash flow out of a house hack. Occasionally that happens, sometimes a pitcher leaves a fastball right over the middle of the play and you just crush it. Those deals sometimes come your way.Generally speaking, the goal is not to get cash flow. The goal is to remove your mortgage payment. The goal is to allow you to save more money. And when you do that over several properties, the savings of your mortgage turns into cash flow when you move out of it, and you eventually live the rest of your life never making a mortgage payment again. Which is how Henry was saying he’s able to live in his dream house.It’s just a little bit of delayed gratification, getting that snowball rolling down the hill early that becomes something big that you then can use to take on some of the big cool multifamily projects or stuff that we talk about here.All right. I want to transition a little bit into picking the market. Henry, are there markets you’ve seen where house hacking doesn’t work or doesn’t work as well?

Henry:Yeah. I mean obviously, the more expensive coastal markets, the New York’s and San Francisco, sometimes even the LA’s and the San Diego’s, right? Where the cost of a house is so expensive that even when you house hack, you’re not going to be able to completely offset your mortgage and you’re still going to have to cover a significant amount of that mortgage. And then you start, and then you’re moving into the realm where house hacking could get risky because not everything goes perfectly.If you end up in a timeframe where you don’t have a tenant, that’s all on you to carry that. And if you’re buying something with a mortgage that you can’t afford to pay, unless you’re house hacking in a very expensive market, you can find yourself in a sticky situation.And so in those very expensive markets, I think you have to be super diligent with the numbers, super and be very open with yourself about your budget and what you can afford to do in a worst case scenario. And in those situations, maybe it makes sense to look at a different strategy, but make sure that you have budgeted and done the numbers and understand exactly what you would be comfortable paying above and beyond what your share of that mortgage would be. And if it becomes unaffordable at that point, then you look at pivoting strategies.

David:Oh, first let me ask you, Rob, what do you think? You agree?

Rob:Yeah, mostly. I don’t know. I think you can make it work in any market. I mean, I moved to LA and I made it work there. Now, you may not be able to rent it to somebody in the long-term sense, but I bought my house in LA, 624,000, it was about four times the amount that we bought the house in Kansas City, and that was a lot.It was actually a very scary amount. We were scared to tell anybody in our family or friends how much this house was because we just didn’t want them to judge us for buying this expensive houses. And so in my mind I was like, “Well, I had heard about Airbnb.” And that’s kind of the beginning of everything, and I was like, “Well, I think this little 279 square foot apartment, if I rented it long-term, I could make maybe 12 to 1500 bucks a month month, which isn’t bad, but if I put it onto Airbnb and list it for a hundred bucks a night, I think I can make two to $3,000 a month.” And that’s exactly what happened.So I was able to make that property work. When I was making $3,000 a month there on my $4,400 mortgage, now my mortgage is 1400 bucks and I was able to make that work. And then I built the tiny house in the backyard and I was renting that out for at its peak, three to $4,000 a month. So I was actually making money on that property very quickly once I figured out how to make that deal work.But I didn’t walk into that deal blind. I had done the math, I had done my comps, I had run the numbers on Airbnb and I made that work for me. And even on the flip side of that, I mean I’ve looked at, I think it’s, you find the house that you want and you figure out how to make it work, right? Because I looked at a lot of houses in LA that were under 624.There were houses that were $500,000 that I was like, “I would never dare put my wife in this house.” And so when I mapped it out, I was like, “If I don’t house hack and I buy a house at half a million dollars, we’re going to spend so much more money than if we just spent an extra $124,000 to buy our house.” And then we house hacked the little studio apartment under it. And so we made that deal work.So it was actually a lot more affordable to us to buy a house in LA and house hack, than it would’ve been to buy a house, otherwise, it actually would’ve been impossible otherwise.

David:I think you guys both make super good points and it’s this, I love that I now get to be the one to sort of parse out what each of you said and simplify it after hearing your cases.Henry’s case is right. In more expensive markets make it difficult to get your mortgage covered completely or cash flow. A hundred percent true. So if you buy a triplex in the Midwest, maybe your mortgage on that’s 1200 bucks, you rent out each side for 600, so you end up living completely for free in that case. The tenants are paying 1200 and you’re living for free. Then you move out and you’re making 1800 on the triplex, but it only costs 1200. Boom. You got some cash flow right out the gate.But if you go into a coastal market, you’re probably not getting a hundred percent of it paid for. The other side of that coin is that the person who bought the triplex is now making, they’re saving a total of $1,800 a month because that’s what they’re getting in rents. But the person in LA who was paying 4,800 for their rent and now only has to pay a thousand dollars, is actually adding $3,400 to their wealth every single month. So you end up making more in coastal markets, but it doesn’t show up on the balance sheet of cash flow. Okay?So each of you are right in a sense, and that’s something that people need to be aware of, when they’re deciding how to house hack in their market. If you’re in California where we are, you’re not going to get a hundred percent of your rent paid, but you’re ultimately going to make more money every month than someone in a cheaper market.And if you’re in a cheaper market, you do have the opportunity to get a hundred percent of your rent paid or maybe even get some cash flow, but you probably need to buy more properties to make up for the fact that not as much money’s coming in per property. That’s where you’re going to need to make sure what you’re doing. It’s even more important to save your cash so you can keep buying.They work in both. You just approach it a little bit differently. So for some context here, if Henry was able to drop his mortgage from $2,500 a month down to $500 a month from house hacking, so he’s saving two grand a month, that’s about $24,000. And you buy a house for about 500 grand and put 5% down, that’s about $25,000. That is pretty much a hundred percent return on your money.Where else in 2023 can you get a hundred percent return on your money and get real estate, where rents are going to go up every year and have a loan that you’re paying off? We haven’t even included in that return. And beginning appreciation and know that instead of your rent going up every single year, the tenants are paying you more every year in addition to the hundred percent return. I don’t think there’s anything even close in 2023 that will give you that, that isn’t wildly risky.Okay, we’re not talking about a crazy cannabis enterprise here. We’re just talking about boring real estate. They get you a hundred percent return and all the future upsides. So now Rob, when it comes to house hacking, there’s more than one way to do it.People typically look right down the box and they’re like, “This is the only way to house hack.” It’s actually tons of options available, many of which fall within your specific purview.So tell me, what are some of the ways that when someone buys a house as a primary residence in 2023, that they can take advantage of some of the other more lucrative strategies with their home that maybe they couldn’t in other circumstances?

Rob:Yeah, man. This is where the sky’s the limit. And I’m, before we even dive into buying a house, I actually think that you can house hack without owning a property. This is a very popular model in New York specifically, where you go and you obtain the lease and you effectively find the roommates. You’re the one on the hook with the landlord, but you actually find the roommates and you basically decide what they pay you for their room and you subsidize your cost that way.At my wife’s best friend was part of this, and she understood that where she went and basically applied for a room at this lady’s apartment, and she knew that she was paying a lot more than market rate, but it was furnished and she didn’t even have to do anything. She didn’t have to pay a deposit or anything like that, but the person who was running that lease paid $500 a month versus the other two roommates paying $1,200 a month. So that’s just a quick example of a way to supercharge house hacking.If you really don’t even own the property, if you’re like, “Man, I don’t have the three and a half percent, I got to stay renting.” That’s a total option for you too. Another way, obviously we’re talking about the 12-month rentals, but what I wish I would’ve done when I got started, I just didn’t know about short-term rentals. And we all know that that’s my thing and I love it.But if you’re not the kind of person that wants to commit to somebody for 12 months at a time, which is super fair because you don’t know how your tenants are going to shake out, you could rent your room on Airbnb. There is a section on Airbnb that says private home, and then there’s entire home, shared space, shared room.You can actually rent to two people to share the room, hostile style. You can rent the room one at a time, and you can actually make a lot more money doing this than finding a long-term tenant because you can charge 50 to $125 a night for your room. And if you did that 10 times a month, like 10 days for example, that might actually pay you more than renting to a long-term tenant for 30 days at a time.And then there’s also the fact that you can do medium-term rentals as well. With short-term rentals, you never really know what types of regulations there are. And so if there are regulations against short-term rentals, the medium-term rental bucket actually gets you out of short-term rental regulation. And when you’re renting to people 30 days at a time, you’re allowed to do that in every city because that falls under long-term rental jurisdiction. So you could rent to people on a medium-term rental basis.And also there are a lot of cities that will allow you to rent your property on Airbnb if you live in that specific property. It might be illegal if you don’t live at that property, but if you live there, they understand that they’ll write rules in place for those types of Airbnb hosts that are legitimately trying to subsidize their mortgage.So it isn’t just, we’re not in the age of 12-month leases anymore. I think you could do medium-term rentals. You can rent your room five days a month if you want to. You don’t even have to own the property. The sky’s the limit here. So you find a deal that you like and you make it work however you want to based on your comfort level and how much money you need to make off that property.

David:So where else in 2023 can you find a strategy that lets you do a short-term rental in a market that won’t let you do short-term rentals? It’s Los Angeles, Southern California, my real estate team down there. This is one of the ways we’ve figured out around all the restrictions against short-term rentals because the neighbors hate it. They just, “We don’t want it.” So then the city restricts how many permits that they issue, and they put all these ridiculous restrictions in place and it makes it so hard to do. And so you just, “I guess I can’t do short-term rentals in 2023.” Not so.You buy that property, all of a sudden a lot of those laws that affect tenants don’t apply to you. It’s an absolute awesome loophole. So one of the things that you’ll see in a city like Los Angeles is they’ll say, “If you buy a property that has tenants in it and they’re paying $400 a month instead of $2,500 a month, you can’t raise the rent. You have to honor the lease that’s in place.” And it just makes it so those properties don’t make sense.But if you’re going to live in it, you could absolutely bump them out of one of the units. I think of it as long as it’s the biggest one and you can move into it. And then after you’ve lived in it for a while, if you choose to want to rent it out, you can do that at market rents.A lot of the stuff that stops investors doesn’t stop homeowners, and you have to start thinking of house hacking as a homeowner strategy that works for investing, and you couldn’t get around a lot of this stuff. That’s one of the reasons that I just wanted to highlight. House hacking in 2023 has so many benefits that other strategies don’t have.All right, Henry, once you’ve gotten the strategy down, tell me what’s next? How do you get into this snowball that we talk about? Should you just get one or two house hacks and stop, or should you keep going?

Henry:Oh, man. My personal opinion is you should house hack every single year until your spouse or your significant other says, “I do not want to share walls or live in a duplex ever again.” Until I hear those exact words. I would just rinse and repeat and repeat because of all of the highlights we talked about leading up until this, it’s such a phenomenal way to build wealth.

Rob:Are you there yet by the way, or are you still house hacking? What’s your current situation?

Henry:I am not house hacking in this one, but as we are, we have looked at other homes and I literally won’t look at them unless there’s a way I can monetize part of that home, going forward.

David:It is, once you see it, you cannot unsee it.

Henry:Yeah. My wife knows, man.

Rob:We’ve house hacked for so many years. I’m at that point, she’s like, “Uh-huh, we’re good.” The money is not meaningful to us anymore. She’s like, “I know you want the content and I know you want to talk about it on you… No more.” And I’m like, “Okay, that’s fine. We did it.” We earned our badge of honor. I’ve done it. I’ve got my rite of passage.

Henry:You got your merit badge.

Rob:Yeah. Exactly.

David:One of the things to highlight here is that house hacking is not just a strategy, it’s a lifestyle. It’s a way of looking at the world like Henry was just saying, “I can’t not look at a property and think, how could this produce income? Because if it doesn’t produce income, I don’t want it.” We’ll find some way to make that rhyme and it’ll be a fun thing that we start saying, “This is especially important for new investors that are trying to get started, that are trying to get that momentum going with the snowball.”We know people, I think Craig Curelop wasn’t just renting out his house, he was renting out his couch and we were teasing him like, “At one point, he is going to rent out his clothes.” People start renting out their cars on Turo, and they’re renting out the pools in the backyard. They’re renting out saunas. There’s the Peerspace movement that’s starting.This is not going to make you a multi-millionaire, okay? We’re not saying just start renting out your goldfish for other people to play with or something like let people take your dog home for a day if they want a dog. But the point is, you can learn the fundamentals using some of these strategies and those will make you a multi-millionaire in the future.You’re not going to stay at this level of house hacking or clothes hacking or whatever we’re talking about forever, but it can kind of get you over that initial fear of, “I don’t really know how to do this.” And then once you get comfortable with it, you stop doing it in a small scale. You start doing it at a bigger scale.Rob, you’re a great example of how that worked out. Can you just paint us a short picture of how you went from house hacking, an ADU in your backyard to now considering rental arbitrage on a 50-unit portfolio in Pigeon Forge?

Rob:Yeah. Yeah. Okay. So that first house that I bought was $159,000, and we sold it three years later for $215,000, after all fees and costs and everything like that, we had a $40,000 profit. We used that $40,000 to put three and a half percent down on that property in LA, and after seller credits and everything, we actually only paid $18,500. And now that property today has gotten me over $200,000 in rents. It’s worth $1.3 million.So just from house hacking, literally half a million dollars in net worth or are a little bit over half a million dollars, in net worth from sacrificing that. I could sell that house today and have half a million dollars in my pocket, because for four years I chose to be a little uncomfortable and have a roommate and have people in my backyard and people under my house. And that’s obviously led to the $200,000 in rents that I’ve gotten from that property has obviously led to me just reinvesting that into all of my Airbnbs.I’m at 35 doors now, like you said, I just got approached about a 52-unit rental arbitrage, master lease in Pigeon Forge, and I can do everything that I am doing today because of what house hacking did for me, and I just can’t vouch for this strategy enough because it has opened every door in my life that I’ve ever wanted open.

David:So here’s the magic. It’s not should I house hack or long-term rental, house hack or short-term rental, house hack or BRRRR. House hack can get you in the door, and then you can use medium-term rentals, long-term rentals, short-term rentals, renting out your pool, refinancing the house later, live in flip. You can buy a fixer upper as house hack, fix it up over a couple years, sell it, not have to pay any capital gain taxes because it was your primary residence as long as you were there for two out of five years.All the stuff you hear us talk about at BiggerPockets, almost all of it is compatible with a house hack. I’m trying to think of the right analogy. You know that website Zapier? You guys familiar with that? It basically makes any computer program talk to anything else. If you have Zapier, you can do anything else with it.House hack becomes that, at its flexibility, it’s low risk, it’s big upside, all of this together. It just over time and time again, shows up as the best strategy possible. And going into 2023, this is the one I can confidently tell everybody, this is what you should be doing. You guys have any last words on what you want to tell the audience about why 2023 is the year that they should be house hacking?

Rob:I don’t, no. I put it all out there. I’m very staunch supporter of house hacking.

Henry:Lift it all.

Rob:I think it’s pretty clear. Yeah. I’m like, “I put it all out there on the podcast.” Just do it. It really is one of those things that at the very least, it builds thick skin and it allows you to just understand some of the discipline that goes into being a real estate investor.And even if you do it for a month, you can at least say, “I did that.” And everything else after that is, I think it makes everything a little bit easier because once you’ve kind of done a house hack, it kind of just puts you out of the comfort zone that prepares you for the rest of your real estate journey.

Henry:Exactly, man. What a low risk way to try several of these different strategies that you’re seeing, you’re interested in. A lot of people say they want to be landlords and then they’re landlords and they may not like it. Well, this is a low risk way for you to try it. A lot of people say they want to do Airbnb and then they do Airbnb and they don’t like it. What a low risk way to try it, man.You can kind of cut your teeth on several strategies, learn what you do, love what you like best, and you don’t have to take on a ton of risks to do it with this strategy. And by the way, you’re going to be building wealth, so do it.

David:Thank you guys. Rob, where can people find out more about you?

Rob:You can find me over @robuilt on YouTube and Instagram. What about you?

David:You can find me @davidgreene24, and please do on Instagram, social media and YouTube. Henry, what about you?

Henry:@thehenrywashington on Instagram or henrywashington.com.

David:And if you’re hearing this message and you are intrigued, you’re like, “Oh, this is what house hacking is. I’ve heard people talk about it.” Or maybe you’ve been knocked off of your perch of the ivory tower elite thing. “I’m too good for house hacking.” And you realized, “2023 is my year. I need to actually get in and do this.”Head over to biggerpockets.com. We are more than a podcast. We are a website, and you can simply put in the phrase, “house hack” into the forums and literally have more information than you could possibly digest if you tried on that forum. Advice people that do it, challenges they’ve run into, how they overcame them, strategies that work, how people became millionaires just from house hacking.Plus, you can get those calculators we talked about at biggerpockets.com/calc, and you can analyze to figure out what your property would cost in case your agent is not as good as one of us and doesn’t know how to do that.But here’s what’s important. You don’t want to let 2023 pass and look back 10 years later and say, “That was one of those open windows where I could get into the best neighborhood. I could still get an inspection contingency, I could still get an appraisal contingency. Rates were a little bit higher, but they dropped after that I could have refinanced out of my 8% loan into a 5% loan and saved even more money, and I let it pass because I was too busy waiting for NFTs to make their comeback.” Don’t be that person. Get into real estate while you can and do it smart. You will not regret it.This is David Greene for the BiggerPockets podcast host signing out.