Chapter 8: Breaking free from my mortgage (house hacking) – How you can prepare to do the same
I don’t think I can complete this book, or get to financial freedom fast, without talking about house hacking, so here it is! I think it is great to have so that you can completely break free of your mortgage obligation and be able to leverage the time and mental energy to grow your business. This is a true hack, in my opinion, if you want to compress the time frame and get to your million dollars faster.
Breaking free from your mortgage is the first step toward financial freedom—either work your ss off and pay off your house, or have someone pay for it. I don’t know about you, but I like the second option better. Somehow the GSD (getting sht done) mentality doesn’t work for me that well. I get my sh*t done, but with leverage. And I don’t want to grind if I don’t have to.
If you do what you are best at and figure out a way to hire or delegate the stuff you are not good at, then it doesn’t feel like grinding. It just flows.
Back to house hacking: I always ask these two questions: “How can I turn a liability into an asset?” and “Who will pay for it?” One day, I asked this question mentally while looking out in my backyard. In front of me was an old shed that was collecting junk from the previous owner. It had been sitting there since we purchased the home, and the light bulb just went off. That was the mental creation of our first tiny home.
Jenny and I have been early adopters of Airbnb. We got an award with ABNB stock when the company went public, just to show you how long we’ve been on the platform. I love the idea of sharing an unused room with out-of-town guests to help pay for the mortgage of the home. It does indeed get a bit uncomfortable, which is why I decided to leverage the storage shed and turn it into a tiny home to get the best of both worlds.
This move actually came out of necessity as well. Since I had just quit my job, I really wanted to find a way to offload my mortgage responsibility, and house hacking provided just that for us. The whole idea of house hacking is to have someone cover the mortgage while still being able to happily enjoy the property.
I actually don’t mind hosting people since it’s part of my personality. I encourage you to look for this kind of opportunity when searching for your personal residence. You never know when you may need to lean on it, like we did.
We were able to achieve this objective by converting the shed in our backyard into a beautiful tiny house. This is one of the homes we acquired around 2017. And because I asked the two questions above when we looked for properties, you will eventually see that they will turn up and fit your buy box. This is a home built in 1965 with 3 bedrooms and only 1.5 bathrooms, and it had a shed in the backyard that could potentially be converted into a tiny home.
We bought the home using private money, did the remodeling, and then were able to refinance after completion and get all of our capital back (BRRR). Our mortgage is around $850 (Principal and Interest). The tax is also minimal in this area since we are on septic and well with no MUD tax. You can read about BRRR in a later chapter.
A couple of years later, we started the construction of converting the shed into a tiny home. It was a fun but also challenging project—much more challenging than we thought because there were no guidelines. We were just putting what we learned from YouTube and Pinterest to use.
Upon completion of the tiny home, we were able to list it on Airbnb, and the home generated a net income of $1,300 per month. Our mortgage for the main house is only $874, so we net around $426 per month. This amount is enough to cover the electricity, gas, grass, and internet for the home. If you want a perfect house hacking example, this is it.
We ran into issues with the local civic club, as they wanted us to shut down the Airbnb, but we ultimately prevailed and held our ground. As more and more court cases develop and the battle between homeowners and Airbnb settles, the law could swing in either direction. So always keep this in mind if you are going to use Airbnb as one of your exit strategies for house hacking.
If you haven’t found your primary home yet, keep this question in mind as you hunt for your dream home: “Is this house hackable?” It’s a much more important question than “Where should I put my TV?” Asking the right question will lead you in a different direction.
House hacking is one of the best ways to stay in your home and have someone else pay down your mortgage.
Can you hack a luxury home?
I am very intrigued by the concept of house hacking a luxury home. Everyone wants to stay in a beautiful high-end home, with a spa and pool, right? The problem with luxury house hacking is that, 1) there aren’t a lot of distressed luxury homes because people with money tend to manage their finances a little better.
As real estate gets more expensive every year, a lot of counties are allowing second dwelling units (ADU) to be constructed on the same lot. These are not sheds but full homes that will generate a lot more income than tiny homes and offset the expense of the main house.
I personally haven’t done it yet, so I can’t write about it. But I know it’s out there, and many people have done it. I would suggest you look into this to increase your quality of life as well.
Questions to ask to determine the “hackability” of a home:
- Are you able to Airbnb it out or lease out the other units with no issues? (local regulation, HOA, etc.)
- Would you be happy with guests coming into the house?
- How private is it?
- Is the main water/sewer line/power line easy to tap into?
- Is there enough AMP in the main power box?
- What is the projected income & mortgage payment ratio?
Chapter Summary
- Ask the right questions when buying your primary residence to determine the hackability of the home.
- Broaden your search to duplexes, triplexes, quadplexes, or multiple separate homes under one tax record.
- Leverage strategies such as Airbnb, Padsplit, room sharing, and Furnished Finder to find guests/tenants to cover your mortgage.
- Leverage BRRR to further multiply wealth.