“House Hacking” is a term I hear thrown around quite a bit these days. People have been doing it for years. The term was coined by Bigger Pockets podcast host, Brandon Turner. This where I stumbled upon the term only to realize I had been doing this for almost a year! The term itself refers to using your primary residence to generate income in order to reduce your cost of living.
House hacking can be as dramatic as living behind a cardboard makeshift curtain and renting out every possible bedroom you own, like Craig Curelop author of House Hacking, to renting out an in-law suite/guest house. Typically the amount you make is directly related to how much privacy you are willing to sacrifice. Meg and I decided that purchasing a row home in the city and renting a room out would be our house hack. I am going to share with you our experiences and how we are leveraging our money and property in efforts to catapult ourselves out of the middle class with some good old fashioned passive income.
Our house hacking adventure starts in the summer of 2019 when Meg and I purchased a Baltimore City row home in the Fells Point neighborhood using a conventional 5% down loan. The process was a bit daunting but now, through becoming a real estate agent, I have learned how much difference a quality realtor can make in terms of a smooth transaction and having an agent really advocate for you. If you need help choosing a realtor check out (BLOG POST LINK) on it. Once we owned the home, we moved in with the lead singer of Baltimore’s favorite local band One Life To Lead, Trey. His rent dropped our $2020 mortgage, insurance and taxes down to $1300. This might not seem like much but thanks to this, I could begin regularly saving the extra money.
Fast forward to COVID times…
I discovered Craig Curelops book as well as a myriad of other house hacking articles and podcasts, Megan is laid off from her 4 year corporate job as a graphic designer so I decided we needed to lower our living expenses and help facilitate our exit from the W-2 lifestyle. We fall on the strategy of renting another bedroom out, this time to the drummer of One life to Lead, Ronnie, taking our overall monthly housing expenses down under $700 a month. This felt amazing to think about… I hadn’t paid this low for housing since college. So not only do we own a home that is gaining value through appreciation but we are also paying less on our taxes and someone else is paying two thirds of our mortgage.
Natural appreciation over time is niceBUT our goals dictate more growth than just the average appreciation would bring…
So we go back to the drawing board on how to eliminate our monthly housing cost entirely. Determined, I began asking some like minded friends for their opinions and boy am I glad that I did. My best man for our wedding this upcoming winter suggested we should turn our underused “sitting room” (living room on the 3rd floor with a wet bar and gas fireplace) into a 4th bedroom…genius. For the cost of adding a door we can turn our 3 bed 2 bath purchase into a 4 bed 2 bath to charge more rent as it is a bigger space with a wet bar and leads to the deck.
You might be thinking…
“Why do you care if it has an extra bedroom if you aren’t adding a 3rd renter?” Well, my thoughtful friend, it has to do with how homes are valued (ROI?). A residential home price is based on an appraisal which is determined by comparing similar homes recently sold in the area. So now our home that we purchased at pre-COVID prices as a 3 bed 2 bath would then be compared to various 4 bed 2 bath homes in Fells Point which are slightly higher in value. This higher value along with the historically low interest rates will greatly help us once we refinance. Once refinancing, we should pay between 100 and 200 a month for our housing expenses.
I realize many people will read this and have the first thought of “well I don’t want to have roommates” and that’s perfectly fine! There are ways to utilize this strategy without sharing a living quarters with them but be ready to spend a little more or make less than if you sacrifice 2 to 3 years of just continuing your college lifestyles. I imagine many of you shared a home in college. It’s the same thing except you are collecting rent each month and reaping the rewards instead of paying someone else’s mortgage.
Imagine what you could do if your housing budget was below $300. Go ahead imagine…I think of the amount of money I can invest into ETFs (Exchange Traded Funds) and other house projects. I think of the freedom that it allows my fiance and I to leave our seemingly comfy careers and step into something we both truly enjoy and have a passion for. I imagine being able to spend time with my future kids instead of being exhausted from teaching during the day and grading papers into the evening. I imagine spending time traveling with Meg without having to stress about whether or not I will be “allowed” to take time off from work.
