\n<\/p>\n
You often hear about house hacking as a means to an end<\/strong>, a simple way to start your real estate journey, but what if it could be more? What if house hacking could be your ticket to financial freedom<\/strong>? Today\u2019s guest, Craig Curelop<\/strong>, author of <\/strong>The House Hacking Strategy<\/em><\/strong><\/a>, shares how he reached financial freedom through house hacking<\/a> and how to follow along in his footsteps.<\/p>\n Craig started where most do, hating his W-2 and working too much<\/strong>. He began researching how to earn a passive income<\/a> and came across BiggerPockets. Within six months, Craig started working at BiggerPockets<\/strong>, moved to Denver, and decided to start living his life the way he wanted. Using his house hacking strategy<\/strong>, he went from being $30,000 in debt to <\/strong>financial freedom<\/strong><\/a> in two and a half years.\u00a0<\/strong><\/p>\n Before you get into house hacking, you need to understand the basics, and today Craig breaks them down. He goes over the different ways to house hack and its advantages and disadvantages. Craig also talks about how to live with your tenants and the boundaries needed for your ideal house hacking situation<\/strong>. Craig paints the whole picture so you can make an informed decision and decide if house hacking is the way for you to become financially free too (or at least build more passive income)!<\/p>\n Ashley: Craig: Ashley: Tony: Ashley: Ashley: Tony: Ashley: Craig: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Tony: Ashley: Tony: Ashley: Craig: Ashley: Craig: Ashley: Craig: Tony: Ashley: Craig: Ashley: Craig: Tony: Craig: Craig: Craig: Craig: Tony: Tony: Craig: Craig: Tony: Craig: Tony: Craig: Craig: Ashley: Craig: Ashley: Craig: Craig: Tony: Craig: Craig: Tony: Craig: Tony: Craig: Ashley: Tony: Craig: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Craig: Craig: Tony: Tony: Craig: Craig: Ashley: Craig: Craig: Ashley: Craig: Craig: Tony: Craig: Tony: Craig: Tony: Ashley: Ashley: Craig: Craig: Tony: Craig: Craig: Ashley: Craig: Tony: Craig: Ashley: Craig: Tony: Craig: Ashley: Craig: Craig: Ashley: Craig: Tony: Ashley: Tony: Craig: Ashley: Craig: Tony: Craig: Craig: Tony: Craig: Tony: Craig: Ashley: Tony: Ashley: Ashley: Craig: Craig: Ashley: Craig: Tony: Craig: Craig: Tony: Craig: Ashley: Tony: Craig: Craig: Craig: Tony: Ashley: Craig: Craig: Ashley: Craig: Tony: Craig: Tony: Ashley: Craig: Craig: Craig: Craig: Craig: Ashley: Tony: Tony: Craig: Ashley: Tony: Craig: Tony: Craig: Ashley: Craig: Tony: Craig: Tony: Craig: Ashley: Craig: Ashley: Craig: Ashley: Craig: Ashley: Ashley: Craig: Ashley: \u00a0<\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n<\/div>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Check out our\u00a0<\/i>sponsor page<\/a><\/i>!<\/i><\/p>\n
This is Real Estate Rookie Episode 195.<\/p>\n
And so, you need to look at the house with the proper layout, so that you can separate the upstairs and downstairs. For example, there\u2019s many houses in the Denver area where the side door that is right where the stairs are to go downstairs. So, all you have to do is put a little wall up or put a little door up and you\u2019ve got two separate units. And that would be perfect to Airbnb the downstairs. We do that. I\u2019ve got many properties that are just that and I think that\u2019s the most efficient way and the way I like to house hack now.<\/p>\n
My name is Ashley Kehr and I\u2019m here with my co-host, Tony Robinson.<\/p>\n
And welcome to the Real Estate Rookie podcast where every week, twice a week, we give you the inspiration, information and motivation that you need to kick start your real estate investing career. Ashley Kehr, my co-host, what\u2019s going on? What\u2019s new in your neck of the woods?<\/p>\n
Well, I\u2019m currently in a stretched position trying to get my knee to stop being painful right now. The six-month, the never ending complaining of me with my knee problems. But hopefully, I just had my last surgery and hopefully, I\u2019m on the mend, but I avoided my pain pill today, which I probably should not have. But I wanted to be of a sound mind for the podcast recording, but I feel like that\u2019s not even possible, even without me on drugs, so yeah.<\/p>\n
But yeah, other than that, everything\u2019s good. I\u2019m going to look at a property tonight that could potentially just be a long-term buy and hold and getting excited. I think when this airs, this has already happened, but I\u2019m going out to Boise, Idaho to a conference that I\u2019m going to be the emcee at and speaking at for AJ Osborne. And it is his CRU Circle event, so it\u2019s on mostly about commercial real estate investing.<\/p>\n
Yeah, it\u2019s exciting. There\u2019s like a loaded lineup of speakers for that one. I think Thatch is speaking there, Brandon is speaking there, so quite a few number of people. When is it again? June, what through what?<\/p>\n
June 14th to the 17th.<\/p>\n
Okay. I think we\u2019re at another conference that overlaps with that, but yeah, I saw the lineup. I thought it was really cool. I wanted to attend. So, you have to give us the full download once you get back.<\/p>\n
Don\u2019t worry. Follow my Instagram stories and you\u2019ll be able to see all that.<\/p>\n
There\u2019ll plenty of that, yeah.<\/p>\n
Nothing about the conference, it\u2019s just the after party.<\/p>\n
Just the yeah.<\/p>\n
No, I\u2019m kidding.<\/p>\n
Yeah. More hula hoops and masquerading views and stuff like that. How cool.<\/p>\n
Yeah. Yeah, the last time I went to an AJ Osborne conference, it was in Coeur d\u2019Alene, Idaho and it was a Self-Storage Conference. And I remember the first night, he\u2019s like, \u201cOh, I\u2019m having just like a small VIP little cocktail hour. It\u2019s just going to be some hors d\u2019oeuvres and cocktails. Just join us.\u201d And it was like oysters, fresh cut prime rib. I\u2019m like, \u201cWait. What does this cocktails and hors d\u2019oeuvres? This is like a meal, a 10-course meal.\u201d So, the food is what I\u2019m most looking forward to.<\/p>\n
There you go. All right. Not the networking, not amazing content. It\u2019s the food. I love it.<\/p>\n
So, what\u2019s new with you, Tony?<\/p>\n
Actually, while we were recording this podcast, I got an email that we just closed on another one of our flips, so that\u2019s always exciting. This one\u2019s cool because all of our other flips, we\u2019ve been using that money towards the purchase of more short-term rentals. But this will be the first flip that\u2019s not earmarked for another purchase. We actually get to spend some of it, so that\u2019s always exciting. So, we started flipping houses late last year and we\u2019ve rehabbed, I don\u2019t know, quite a few in Joshua Tree now. So really, really excited that we can continue to grow that part of our business.<\/p>\n
And we\u2019re flipping these properties as turnkey short-term rental, so even though it\u2019s technically a different type of real estate investing it pretty much is still what we\u2019re doing. But instead of us keeping the property, we\u2019re just selling to someone else at the end. So, it\u2019s been cool to learn this other side of real estate investing and the properties turn out, we get better every single time. So, if you guys want to see the flips or you guys want to maybe buy them from us, you guys can follow on Instagram. It\u2019s @TonyJRobinson. I usually post all the flips we\u2019re selling there.<\/p>\n
I think that it\u2019s so cool that you are taking exactly what you\u2019re doing and learning how to have a different exit strategy based off of it. But also helping other people get started. Having a turnkey property is a great way to get started in real estate investing if you know nothing about rehab and especially if you want to get into short-term rentals. A lot of the properties that you have bought purchased out in, and even Joshua Tree, but in the Smoky Mountains, too, a lot of them were pretty much turnkey, correct?<\/p>\n
Pretty much, yeah, everything we bought in the Smoky\u2019s has been turnkey. It was an existing short-term rental, it came fully furnished and we spent a couple of thousand bucks like replacing linens and missing silverware and stuff like that. But yeah, there\u2019s definitely a gap right now I think in the short-term rental industry, in terms of turnkey opportunities in a lot of markets. If you look at long-term rentals, there\u2019s turnkey operators in almost every major location, but that same thing hasn\u2019t happened yet for the short-term rental. So, we feel like we\u2019re filling a void there, yeah.<\/p>\n
Well, today, we are talking about a specific topic and that is house hacking, not short-term rentals. And we have an expert on today, Craig Curelop, who wrote the book, the house hacking strategy. So, Craig joins us from Denver where he has his real estate team, but also recently, we found out just moved to Idaho. So, Craig is coming on today to talk about house hacking, what it is, is it still possible to do in today\u2019s market? What are the advantages, the disadvantages of it?<\/p>\n
And I\u2019m glad we brought Craig on, because in my mind house hacking is one of the lowest risked ways I think to get started as a real estate investor. And Craig Curelop breaks down his five-year blueprint that most people can probably achieve financial freedom by following or using house hacking as a strategy. So, overall, just Craig is a wealth of information when it comes to house hacking and we hear a little bit about his story, how he got started, how he was sleeping in a cardboard box in his own living room. And how that led to him achieving financial freedom. So, overall, just a really cool conversation with Craig.<\/p>\n
Craig, welcome to the show. Thank you so much for joining us, since last time we tried to record with you, you ditched us.<\/p>\n
I know, I know. Well, I missed the memo. I thought we were doing this podcast in the river in the Grand Canyon on the Colorado River. So, you guys didn\u2019t show up, I was waiting for you.<\/p>\n
You know what, I think that is the best excuse to not show up to a podcast recording. And you know what, you\u2019ve definitely left your mark because you\u2019re the first person to not show up to a rookie podcast [inaudible 00:06:41].<\/p>\n
Really? I\u2019m in the record books?<\/p>\n
You\u2019re in the record books, man.<\/p>\n
Yeah.<\/p>\n
All right, put me down.<\/p>\n
And so Craig, tell us a little bit about yourself. For people who don\u2019t know, you\u2019ve written the book, The House Hacking Strategy. You\u2019ve been a big part of BiggerPockets and you\u2019re a real estate agent. So, just give us a brief backstory on you.<\/p>\n
Yeah. Really, it all started like a lot of people start out in this industry, just absolutely hating my W2 job before I worked at BiggerPockets. It was honestly-<\/p>\n
I was I going to say, I was like, \u201cWhat did you work for?\u201d<\/p>\n
Yeah. Scott\u2019s in the background there, like yeah. No, so it was when I was in California working like a venture capital job, being an analyst. And just working hundreds of hours a week and looking down the hallway and seeing that my progression would be moving 30-feet down the hall to being my boss. And maybe I worked a hundred hours a week, maybe he worked 80 hours a week, so it really wasn\u2019t a good life.<\/p>\n
And so, I started getting the idea of a passive income after reading Tim Ferriss\u2019s book, the 4-Hour Work Week. And after reading that book, I was like, \u201cOh, I should start thinking of my expenses on a monthly basis, my salary on a monthly basis. And then if I can just get enough passive income on a monthly basis to cover my expenses, well, I\u2019m financially free and I no longer have to work.\u201d And that sounds a lot of fun. I get to travel, spend time with friends, do whatever I want and live on my own time.<\/p>\n
And so, being in Silicon Valley, I was trying to think of dumb startup idea after dumb startup idea and if you didn\u2019t know, Silicon Valley is filled with dumb startup ideas. And so, none of those just worked. And so then, I went back to my house and I looked around and I was living in a 20-unit apartment building. And I was like, \u201cThis little Spanish lady, who comes to collect rent every month has probably collect in a hundred grand on the first of every month. And all she has to do is drive her car here.\u201d I was like, \u201cThat sounds pretty cool.\u201d<\/p>\n
And so then, I started diving into real estate. Obviously, I found BiggerPockets, not long after that and then I went down the rabbit hole. And so, within six months of finding BiggerPockets, I found myself working at BiggerPockets, moving to Denver, purchased my first house hack. And that\u2019s where it all started.<\/p>\n
Craig. I love that you made that observation of, \u201cI\u2019m working a hundred hours a week. Once I get promoted, I get to look forward to 80 hours a week.\u201d Which is, it\u2019s such a weird dynamic, but it\u2019s what so many of us are accustomed to and it was that light bulb that made things go off for you. It\u2019s so funny, man. The 4-Hour Work Week was one of the first books I read about entrepreneurship as well. So, for me, it was Rich Dad, Poor Dad and The 4-Hour Work Week came shortly there afterwards and that\u2019s when I went down the rabbit hole, too, man.<\/p>\n
But Craig, what makes you unique, man, is that you\u2019ve built a name for yourself around one specific strategy within the world of real estate investing. So, breakdown for us exactly what house hacking is and why you felt it was a good place for you to start your investing career.<\/p>\n
Yeah. So, I think anyone who\u2019s young or anyone really, in general, house hacking is probably the best place to start. And so, what house hacking is, is the idea that you\u2019re going to purchase a one- to four-unit property with a low-percent down, typically, 3 to 5% down. Because you\u2019re doing a low-percent down loan, you\u2019re required to live there for one year and while you\u2019re living there, you\u2019re able to rent out the extra bedrooms or the extra units. So, the rent that you\u2019re gathering covers your mortgage and you\u2019re able to live rent free.<\/p>\n
And I would bet that 90% of the people listening right now, their largest expense is their living expense, unless they\u2019re house hacking, of course. And so then, so you\u2019re eliminating your largest expense, you\u2019re investing in a property, you\u2019re living in your investment and so, things aren\u2019t going to go bad when you\u2019re living there, because you\u2019re seeing it every single day. So, it\u2019s like landlording on training wheels and you\u2019re able to do this year after year after year until you have a pretty sizable portfolio. And you can easily achieve financial independence just through house hacking.<\/p>\n
Craig, thanks for that breakdown, man. So, I just want to recap it to make sure that our listeners are following. So, essentially, you go out, you buy a property and then you rent out the extra space in that property to help offset your cost of owning that home. Did I wrap that up the right way?<\/p>\n
Yeah, you got it, man.<\/p>\n
So, Craig, let\u2019s talk about why do you feel this strategy is a great way for newer investors to start. And especially given where the market is at today, there\u2019s a lot of fear, I think, of a lot of people who want to get into investing. Why is house hacking a great place to start?<\/p>\n
Yeah. It\u2019s a great place to start because you don\u2019t need a lot of money to get started. Simple as that. You need 3 to 5% down. So, if you\u2019re in Denver, buying a $500,000 property, you need between $15 and maybe $30,000 down. That is a lot less than what it would typically cost to buy a $500,000 property over a hundred grand. And so, you\u2019re not putting a whole lot of money down. Because of that, your returns on investment are massive.<\/p>\n
Like I said prior, it\u2019s you\u2019re landlording on training wheels. You\u2019re living in your investment, so you\u2019re seeing your tenants come in and out. You can stop things and nip them in the bud before they get too bad. And so, I think those are two really big reasons why house hacking is a great way to get started.<\/p>\n
Now, you talk about that half a million dollar house that somebody is going to go purchase and maybe they\u2019re buying that because it has four bedrooms, so they can live in one and rent out the other three. How do you get approved for these higher purchase price instead of having to buy a two-bedroom one bath, because that\u2019s what you can afford, but if you\u2019re house hacking this bigger property with more rooms, does the bank actually look at that income that you\u2019re going to be bringing in on the property?<\/p>\n
So, this seems to change by the month, it feels. Sometimes, the bank will look at prospective rents and take 75% of border income is what they call it. They were doing that at one point. I think they stopped doing that as of this recording. By the time this releases, they may start doing it again. So, my recommendation would just be to talk to a bunch of different lenders and see if they can use any of the expected rent to offset the debt payment to increase your debt to income ratio. Now, you can definitely do that if you use an FHA loan on a two-, three- or four-unit property. I\u2019m just not sure how that works with the bedrooms at this point in time.<\/p>\n
So, now, how you talked about things change going on with lenders and definitely, everything in the market is changing right now than what we\u2019ve seen in the past several years. So, has that affected house hacking at all? And is it still possible to house hack a property?<\/p>\n
So, I truly think that there will never be a time where house hacking is not advantageous. I just don\u2019t see a time. The reason is one, there\u2019s many different types of house hacks. And so, if you\u2019re buying a four- or five-bedroom house, you\u2019re living in one unit, renting out the other. In a bad economy, you\u2019re offsetting your mortgage payment, which will only help you. You\u2019re offering cheaper housing to people who need cheaper housing because obviously people pay less for a room than they will for a full unit.<\/p>\n
So, I don\u2019t see the necessity for house hacking really going away. I thought, I legitimately thought I was nervous when COVID hit that people may not want to be living in a room with four strangers that they don\u2019t know where they are or how dirty they are. But honestly it\u2019s like it wasn\u2019t even the case. So, because house hacking persisted through COVID, lasted through COVID, I just don\u2019t see any scenario where people wouldn\u2019t want to do that.<\/p>\n
So, Craig, you also mentioned there\u2019s multiple ways that you can house hack. So, I just want to break down some of those and tell me if these different scenarios work with house hacking. So, you already mentioned you can go out and buy a big house. Buy a five-bedroom house where you rent out the other four bedrooms. What if I want to rent out my basement? Can I house sack my basement?<\/p>\n
Yeah, we do that all day. So, it depends. Obviously, you have to know what the houses look like in your area. Many houses in the south don\u2019t have basements. In Denver, a lot of houses do and so, you need to look at the house with the proper layout, so that you can separate the upstairs and downstairs.<\/p>\n
For example, there\u2019s many houses in the Denver area where the side door that is right where the stairs are to go downstairs. So, all you have to do is put a little wall up or put a little door up and you\u2019ve got two separate units, and that would be perfect to Airbnb the downstairs. We do that. I\u2019ve got many properties that are just that. And I think that\u2019s the most efficient way in the way I like to house hack now. Now, that I like to have my own space, now that I\u2019m a few years in.<\/p>\n
What about like, I don\u2019t know, say I have a detached garage or an ADU in the back. Can I house sack those?<\/p>\n
Sure. I mean you can house hack anything. You can put a tent in your backyard, you can add storage units. There\u2019s so many ways you could get money out of your house. But people ask me a lot, \u201cShould I renovate my garage and add plumbing and add electrical and add all of these different things?\u201d Honestly, I think it\u2019s going to cost you 75 to 100 grand to do all that. You might as well just buy another house is my thought. It would be less work, less stress, less permits and less time. So, if you got 75 to 100 grand, I would say like, and you get to keep your garage. So, my two cents, I don\u2019t love the garage conversion thing, but it all depends on where you live.<\/p>\n
Yeah. And I\u2019m asking these questions facetiously. The point I want the listeners to understand is that whatever extra space you have, whether it\u2019s a basement, an ADU in the back, or you buy a multifamily where you live in one unit and you rent out the other three units. Whatever extra space you have on your property, you can turn that into an income generating space as opposed to a liability like it is for most people.<\/p>\n
100%.<\/p>\n
Also, parking for RVs and boats, that\u2019s really big in our area, so a lot of people have these in over the winter. They need somewhere to store it in their driveway in the suburb. It might not be big enough to actually store it and so, they need somewhere else to store it. And a little side note here, our producer also chimed in with a studio space in your kids\u2019 closet, which is how I recorded for the last three years.<\/p>\n
Yeah. And if you guys don\u2019t know-<\/p>\n
There you go.<\/p>\n
I\u2019m at my kitchen now. No, but-<\/p>\n
Yeah. If you guys don\u2019t know Ashley\u2019s kids, they\u2019re actually ruthless landlord. So, Ashley pays a premium for recording in that studio every single month. So, she taught them well.<\/p>\n
Actually, they did. My one child has a really nice big walk-in closet and I\u2019m forced to take the small bare minimum walk-in closet for my studio.<\/p>\n
Oh, my gosh. I love that.<\/p>\n
The thing is with my knee, with hurting my knee, my knee has been straight for so long, so I haven\u2019t been able to bend it enough to get into the studio\u2026<\/p>\n
Get back into the closet.<\/p>\n
\u2026 other than that. So, I should be able to move back in shortly.<\/p>\n
So, Craig, we talked about some of the benefits of house hacking, some of the different ways you can do it. But what do you think are some of maybe the disadvantages that come along with house hacking? Maybe why is it a bad approach for someone?<\/p>\n
It is a little bit more work, obviously. You are maintaining a house and you need to get tenants and you need to sign leases and do your diligence and all that. So, it doesn\u2019t come without a cost. Is that cost large relative to what you\u2019re getting out of it? I would say not at all. My story is I went from a negative $30,000 net worth to financially free in two and a half years, mainly through house hacking.<\/p>\n
And so, it\u2019s not get rich super quick, but it\u2019s get rich pretty darn quick if you want to do it the right way and you want to really be scrappy. And I was really scrappy for those first few years. And so, yeah, I just think that, I think it\u2019s for anyone that wants to, again, expedite their path towards financial independence.<\/p>\n
All right. So, Craig, appreciate you breaking down some of the disadvantages of that. I think it\u2019s important for new investors to hear both the good side and the bad side of real estate investment, because every type of real estate investing comes with some type of downside. And you just got to make sure that if you choose this strategy that it will align or that you can stomach what those downsides are, I guess.<\/p>\n
Now for me, Craig, one of the biggest things that I\u2019d be concerned with from house hacking is having to share my personal space with strangers. So, what tips or advice do you have for someone that might be worried about the same thing?<\/p>\n
Yeah, so we talk in the book about the comfort continuum. On one side, it\u2019s comfort and on the other side is profit. And on the far side of that continuum, the profit side, it\u2019s, yeah, you\u2019re living on the couch in your living room and renting out every other room in your house, so understandable if you don\u2019t want to do that. So, you just move along the continuum towards the comfort side, which is what you mentioned before Tony, about having a house where you just rent the basement. So, that way you have your own space. I\u2019m sure you may hear them come in and out.<\/p>\n
But honestly, when we\u2019ve done this, I don\u2019t think I\u2019ve ever even seen my Airbnb guests. I\u2019ve heard them walking down the stairs and stuff, but you really don\u2019t see them that much. And so, that usually is enough privacy, so that you can still make some money, you can still cover your mortgage or at least get pretty darn close and you can still make serious leaps towards financial independence.<\/p>\n
So, are there a lot of properties out there that have the basements redone or what are some things that me or anybody could look for when they\u2019re looking for a house hack? What do you look for when you\u2019re searching for a property?<\/p>\n
Yeah, so in Denver, there are a lot of basements that are completed. And so, those are really easy to Airbnb, especially if you don\u2019t care to add a kitchen or anything like that. Obviously, if you add a kitchen, it will get you a little bit more and then you have some more flexibility with maybe splitting it up into two units later on. But if you\u2019re just looking at Airbnb, all you really need is like a microwave and a mini fridge and you\u2019re good to go.<\/p>\n
I personally like to add kitchens, because I like to have that flexibility in case Airbnb ever goes away or anything like that. And so, what I like to look for is big utility rooms. You\u2019ve got the washer and dryer in there, but you\u2019ve got all the exposed pipes, you\u2019ve got the electrical, so it\u2019s very easy to add a kitchen down there. And usually, it\u2019s about the space that you\u2019d want for a kitchen. And so, it may cost 15 or 20 grand to add that kitchen. And now, you\u2019ve got a house with two kitchens, maybe two laundries. And so, you\u2019ve got this true single family house with a mother-in-law suite that you could rent out both sides. So, it\u2019s like a duplex, but not technically a duplex.<\/p>\n
Okay. So, if you purchase one of these properties, are there zoning requirement to say you\u2019re just doing house hacking where you\u2019re just putting maybe a person in each bedroom? Are there zoning requirements for that? And we can talk about the short-term rental side, too, but just for having somebody do long term rental in rooms, does that matter at all?<\/p>\n
So, each city or each town has different rules for the maximum unrelated people living in a house, so you\u2019ll need to know those rules and my recommendation would be not to break those rules. I would say that most of the time, those rules aren\u2019t super enforced. But again, it\u2019s up to you whether you want to take that risk or not. I know plenty of people that have taken the risk, they have not gotten caught, but it just takes one annoying neighbor to catch you.<\/p>\n
So, my recommendation is figure out what your jurisdictions laws are, surrounding maximum unrelated tenants, and then you can buy the four-or five- or six-bedroom houses based on what that number is.<\/p>\n
That\u2019s interesting. I did not know that that was even an ordinance or a law that cities had. But interesting as you go narrow and deep on some of these different strategies, you start to uncover all these different weird nuances. Craig, I want to go back because you said you started off by renting out rooms in your house. That was your first house hack and you\u2019ve graduated to this basement strategy?<\/p>\n
So, my first house hack was where I was living in the living room behind a curtain in a cardboard box. And then, I went to Rent Find, then I discovered that I could have my own bedroom.<\/p>\n
Yeah. There was a step-up above that. That\u2019s hilarious, man.<\/p>\n
Yeah, yeah. Having my own room was a luxury.<\/p>\n
So, talk us through that. What are maybe some rules. I think it\u2019s a little bit easier if you have separate units. If you\u2019re living in the upstairs unit, someone else is living in the downstairs unit, you\u2019ve got a triplex where there\u2019s two other units. But if you\u2019re in the same house and you\u2019re renting out spare bedrooms, what are some ground rules you should set in place for your tenants? How you screen people to make sure you don\u2019t get some maniac living with you? How do you set yourself up for success?<\/p>\n
First, Craig, before you answer that this is bringing you back to college days where this is, house hacking is very common, where you get your group of friends together. You rent a house, each person pays by the bedroom. But I think this is very different is because you\u2019re going and getting your friends to live with you. So, there may not be as many set rules in the house, but you also have that other person as the landlord that collects the rent from everybody, make sure the utility is paid, things like that.<\/p>\n
Where now, you are responsible to make sure that everybody is paying and choosing the people to live in those rooms. You may have never have met them before. So, yeah, I\u2019m curious as to what, do you have a rules list that\u2019s posted on the fridge? How do you share the common area?<\/p>\n
I did have that rules list, but I can tell you, I don\u2019t think people can read. So, this is obviously, it is a thing, but honestly, it\u2019s not as bad as people make it out to be. There\u2019s this common misconception that when you think of rent by the room, you always think first thing is college, living in a five-bedroom place with your buddies. But the thing is you\u2019re not living with your buddies. And so, no one really cares to interact with each other, so there\u2019s not really much like living room, people aren\u2019t really hanging out in their common areas.<\/p>\n
Most of the time, people are throwing a DiGiorno\u2019s pizza in the toaster oven or the oven, whatever, and bringing it back to their room and that\u2019s it and you\u2019re not. And so, really the rules, we set them right in the beginning. So, I think you always want to make sure that in the beginning and it\u2019s \u201cClean your dishes, wipe up after yourself.\u201d And then once a month, we\u2019ll get a cleaner to clean the bathroom and the kitchen. And those main areas like that.<\/p>\n
Craig, did you ever have any instances where people, your tenants weren\u2019t following those house rules that you set up? And if so, how did you go about correcting that?<\/p>\n
Yeah, tenants, they\u2019re not usually that bad. In my experience, they just haven\u2019t been that bad. Maybe I\u2019ve done a decent job at just screening them. But in the event that something would happen, really, you have to address it soon and address it often before it becomes a habit for them. Habits take a long time to break. And so, if they have a habit of leaving that coffee stir spoon in the sink and that annoys somebody, you say, \u201cHey, you mind just rinsing that off and whatever, throwing it in the dishwasher?\u201d And just tell them every single time that it happens, so that way they don\u2019t fall back into their habit.<\/p>\n
And so, if you tell them just once though, you can\u2019t get all mad at them if they do it again a second time. They\u2019re in a habit. You\u2019re helping them break this habit, so you have to realize that it\u2019s going to take time for them to adjust out of that. But to continue to adjust, to asking them and asking them nicely, so there\u2019s no hostility in the house.<\/p>\n
Come on, Craig. The answer we wanted to hear is that you laid down the law, you came out, you had your mustache. You had your stored attached to you and walked around the house to make sure all the rules are followed.<\/p>\n
Yeah, I just walked around with a shotgun.<\/p>\n
Yeah, Craig, perfect execution. So, you talked about the screening piece, man, so help us understand. For me, I would probably be a lot more stringent for house hacking tenants than I would be for a traditional tenant because I have to share the space with them. So, what did your screening process look like?<\/p>\n
Yeah, so we would send out an application and that application would basically make sure that they give us their credit score and a background check. Personally, what I looked for was 650 or higher credit score and a clean background check. If there was a DUI like a few years ago or something like that, I would let that go, but obviously, nothing drug-related or nothing violent-related. That\u2019s an automatic pass. And then, you have the landlord references, the employer references, the pay stubs and all that stuff. And so, try to gather as much information as you can about the tenant, verify that information, and then you can go ahead and accept them.<\/p>\n
And Craig, there are separate rules for screening a tenant if you are going to be living in the same property, correct?<\/p>\n
Yes, that\u2019s right. So, if you\u2019re living in the property, there\u2019s the fair housing laws, which you can\u2019t discriminate based on race or sex or family or whatever. But if you\u2019re living in the house, you can basically say any reason that you want. I recommend, just make your life easy and don\u2019t deny somebody because of their race or their religion or something like that. But it could be like, \u201cHe looked like a high school bully of mine and I didn\u2019t like that.\u201d And so, that is a perfectly valid reason to not want to live with somebody and so-<\/p>\n
Craig, was that a real reason? Did you really turn somebody away for?<\/p>\n
Yeah, I got afraid of one guy. I was afraid he was going to steal my lunch. So, those are like, you can. You\u2019re right, Ashley. You can be a lot more stringent and have weirder answer. If you just don\u2019t want to live with somebody, it\u2019s fine, but I would try to stick to the fair housing laws as best as you can.<\/p>\n
And then, what\u2019s a good way to make sure that you stay in landlord mode. And you treat this like a business, so that maybe you\u2019re having everybody pay online or something. It\u2019s just automatically deposited into your account versus getting like, \u201cOh, well.\u201d Having the person next door to you knocking on your door and be like, \u201cHey, here\u2019s $100. I\u2019ll deposit the rest later and stuff.\u201d How do you keep that, focus on your business and those systems and processes and it doesn\u2019t get too relaxed into a friendship mode?<\/p>\n
Yeah, no, that\u2019s great. So, I use a system called Rent Ready. I think I\u2019m sure, I think they were on the bigger pockets podcast and all that. And so, it\u2019s a software that allows the tenants to submit maintenance requests. It allows them to do automatic rent payments and all that. And so, basically you just make sure they set that up in the first month and then you never have to ask for rent ever again, which I think is amazing. As for not getting too friendly with your tenants, that\u2019s a really easy thing to slide into, especially if you\u2019re very friendly.<\/p>\n
What I would do is I would be civil and cordial with them in the house, but I would never really ask them to hang out, go somewhere to hang out. I would never ask them to go to a restaurant or go to a bar or go snowboarding or anything like that. But that\u2019s just the culture of my house. One way that a lot of people get their houses filled is that they niche out their house, so they say like, \u201cSnowboard is paradise,\u201d or like, \u201cRock climber haven.\u201d So then, they get a bunch of snowboarders and then they go and they become friends. And that\u2019s actually a really good way to get tenants. So, it really just depends on how you market your house hack and what house hack you want it to be.<\/p>\n
That\u2019s cool. I\u2019ve never heard of that before like picking a niche and trying to get people that have common interest into a house.<\/p>\n
Yeah, it works really well.<\/p>\n
Yeah. Ash\u2019s would be, \u201cMust have cool hip-hop T-shirts to live in this house.\u201d<\/p>\n
Yeah. [inaudible 00:29:10]\u2026<\/p>\n
Or really bad knees.<\/p>\n
Yeah. She\u2019s got-<\/p>\n
\u2026 I should say.<\/p>\n
She\u2019s got some Kenny Chesney on there now, yeah.<\/p>\n
So, Craig, one follow-up question to that, so the other thing that always gets me stuck on the house hack strategy is how do you split up utilities, maybe common things like toiletries and paper towels and dish soap? How did you account for all those things? Was it just one flat rate? Was it variable? Switching off month by month? What was your strategy for managing those?<\/p>\n
Yeah, so when I had these, I would just charge a $75 utility fee on top of the rent. And that would change based on how many bedrooms it was. If it was a four-bedroom, it\u2019d probably be $100. Nowadays, I would actually increase that to $100 because prices are rising. But so, you just have a flat fee. In the winter months, your utility bill is a little bit higher and so, you\u2019re going to lose a little bit. But in the summer it\u2019s a little bit lower, so you\u2019re going to win a little bit. And it nets out within a hundred bucks over the course of the year.<\/p>\n
And so, that is infinitely easier than going in, splitting it up five ways every single month, adding it all up. It\u2019s a pain. I did that, too and I would just never do that again. And so, that\u2019s what I would suggest, a flat fee, split it that many ways, and you\u2019re good to go.<\/p>\n
Does that include all the household items, Craig? So, the dish soap, the paper towels, the toilet paper. Everything that\u2019s needed just for the common areas, too?<\/p>\n
So, when I would furnish a house, I would purchase, I\u2019ll go to Costco and I\u2019d buy a big thing of toilet paper, a big thing of paper towels, a big thing of, like all that stuff. It would maybe cost 100 to 200 bucks and that would be really good for the year. And so, I don\u2019t know if it includes it or not. Sure, but also if things ran out and I wasn\u2019t around, people would replace it. There\u2019s never been a time where we went without toilet paper or anything like that.<\/p>\n
Yeah. Last question, what about the food piece? Did everyone have their own section in the fridge to say, \u201cHey, this is Craig\u2019s stuff. Don\u2019t touch it. This is Ashley\u2019s. This is Tony\u2019s.\u201d How was the food handled?<\/p>\n
Yeah, so there\u2019s specific places in the fridge and also, everyone has their own cabinet. And so you\u2019ve got your dry goods and your stuff you need to refrigerate. There were sections for sure, like section-ish, but sometimes, you put the milks together and you just remember which milk is yours and all that stuff. And we never really had an issue with that. I forgot to say this, if you are going to have five or six people living in the same house, I would probably suggest getting two refrigerators. We always had one upstairs and one downstairs and that way they can store their stuff in the fridge and less time coming upstairs and just more room for everybody.<\/p>\n
Interesting. Yeah. I don\u2019t know if I could ever go back to house hacking sharing crisis because I know Tony would yell at me because I\u2019d steal his food all the time. We went to Tennessee together and we stayed at a cabin, a bunch of us. And Tony was meal prepping for his fitness competition and he brought, it\u2019s from California to Tennessee, all of his meals in his little container. And that was the only thing in the fridge, I think that we-<\/p>\n
And Ash, did you eat one of them or something?<\/p>\n
You know what, I was so starving when I got there. I was so tempted to, but Tony, you know how nice him and Sarah are, they actually brought me back some chicken. It all worked out, yeah.<\/p>\n
So, Craig, what other tips and advice do you have for rookies that are looking to get started in their house hack? Who are some of the people they should have on their team, maybe? Do they need to find an agent who is friendly to house hacking and knows what that is? Do they need to go to certain mortgage lenders? What does their team look like that they should be building?<\/p>\n
Yeah. So, I think the first and probably, maybe I\u2019m biased, but the first and probably, the most important person on your team is going to be a real estate agent, because your real estate agent is that node that knows everybody else. And so, if you find a good investor friendly agent that has worked with house hackers before in your area, then make sure they are house hackers, make sure you get along with them, obviously. But if they pass all your criteria, they\u2019ll introduce you to their house hacking friendly lender and contractors and accountants and everything you really need.<\/p>\n
And so, you don\u2019t need all that stuff up front. Get an agent, find an agent is the first step. After that, they\u2019ll introduce you to everybody else. Let them do the work. And so, I think that\u2019s just the most crucial piece. But I would say take your time finding a really high-quality investor friendly real estate agent and let the rest fall into place.<\/p>\n
What about the landlord piece? Is it common for if you\u2019re house hacking, to get a property manager or do you recommend that you self-manage?<\/p>\n
I think at first it\u2019s best to self-manage just so you know how to do it. And just so you know if your property manager is messing up or not. So, the way I did it was I managed my first two properties myself. Once I got to my third one is when I started hiring property management and I even hired a property manager for the house I was living in to rent out those other bedrooms. And the reason for that was because I was becoming a real estate agent at the time and it just became way more, my time was better served showing people houses versus waiting in the house, having people not show up to see your room. And so, you guys have to figure out what your time is worth. And then, you\u2019ll know when it\u2019s time to hire a property manager. It is very obvious.<\/p>\n
So, Craig, you mentioned earlier that you\u2019ve essentially achieved financial independence within less than three years through the house hacking strategy. So, what I want to do is, if you can maybe open up the kimono a little bit and give us the behind the scenes. If someone today, they\u2019re working a 9:00 to 5:00 that maybe they\u2019re not crazy about, how can they use house hacking to, maybe not two and a half years, that might be a little bit aggressive, but say they had five years. If someone wanted to achieve financial independence with house hacking over the next five years, what blueprint can you give our listeners to be able to do that?<\/p>\n
Yeah, so the way that a lot of people in Denver are here doing it is each house hack they buy is going to cash flow them between $500 and $1000 a month. And so, you\u2019re able to buy one of those a year, every year for five years. And so, if get great deals and you can get $5,000 a month in five years, well, that\u2019s financial independence right there. And that, of course, assumes that your rents don\u2019t increase and property values don\u2019t increase, because once you start getting more and more properties that are increasing, you\u2019re able to take the equity from those properties through a HELOC or whatever else. And you can buy more and you can acquire more.<\/p>\n
And so, I think Brandon has talked about the stack where everybody thinks linearly, but really, it doesn\u2019t work that way. Once you start getting 1, 2, 3 properties, you\u2019ll have more money to then buy 4, 5, 6, 7, 8, 9. And I guarantee you, if you put your head down and buy a property a year, you\u2019ll be very close to financial independence within that five-year timeline.<\/p>\n
You have my head spin a little bit, Craig. So, I live in Southern California, which is historically a pretty expensive market and a lot of cities here, just buying a long-term rental wouldn\u2019t make sense. And it\u2019s not necessarily house hacking, but just the idea of renting by the room in maybe a more expensive market could be a way to really unlock a different level of profitability. Because if I could rent, maybe a house by itself for $2,700, if you rented the whole house, but if it\u2019s a five-bedroom and I can rent each one for maybe $800 a month, that\u2019s a big difference in profitability there. So, yeah, no, no, just thinking out loud. Maybe I\u2019ll go out and buy a house hack or a multifamily, rent it out by the room now, so we\u2019ll see.<\/p>\n
Yeah, so in-<\/p>\n
I already texted Sarah. She said, no.<\/p>\n
Yeah. No more deals.<\/p>\n
So, in more expensive markets, because people always are baffled that I think anyone would say, \u201cOh, my gosh, I can get a property in Denver,\u201d which appreciates 20% the last two years and still get $1000 of cash flow. I think anyone would take that all day. And I don\u2019t do that by just buying a house and renting it out traditionally. Those are for Midwestern markets and in those markets where you can buy houses for under 100 grand.<\/p>\n
You have to get a little bit creative in these markets like Denver, Austin, Seattle, I\u2019m not too sure about Southern California, but these tier-two cities, maybe not the LAs and San Franciscos, but what you do. And so, there\u2019s many ways you can do it, whether it\u2019s rent by the room. I\u2019ve been doing this thing now with Airbnb arbitrage. And so, I think a lot of people get excited about finding landlords to rent from, and then put it on Airbnb and keep the difference. Well, I\u2019m just that landlord.<\/p>\n
And so, if someone comes to me and they want to Airbnb my place out, they pay me $400, $500 a month premium and they take on the management of it. And so, I\u2019m saving. I\u2019m making $400 a month more plus I\u2019m saving on the property management fee, which is about a $600 to $700 difference than I would just traditionally. And so, I\u2019m like all day, I will do that.<\/p>\n
Craig, you\u2019re going to have so many people, who are fans of short-term rentals, who reaching out to now saying, \u201cPlease let me arbitrage your units in Denver.\u201d<\/p>\n
Yeah, Craig, let me dig into that. So, you\u2019re not paying a property manager for these fees that the operator is taking over. So, are they taking care of all the maintenance then? Is that included in your lease agreement that they\u2019re in charge of that?<\/p>\n
So, at least with my agreement, I think every agreement will be different. With my agreement, they take care of the small stuff that the guests will probably do, like little leaks here, little stuff there. If there\u2019s something big, the AC goes, the furnace goes, the roof needs to be replaced, that\u2019s on me, of course. And so, think like most of my maintenance is taken care of.<\/p>\n
And I\u2019m a pretty nice dude and I don\u2019t want to spoil our relationships, so am I going to let $200 once every four months really destroy a relationship I have with this person who\u2019s given me, say helped me save $600 a month? Of course, not. And so I\u2019m fairly lenient, but yeah, but the agreement usually is they pay for the small things, I pay for the big things.<\/p>\n
Okay. So, they would still contact you directly instead of the property manager?<\/p>\n
Yeah, if something needs to be replaced. Yep<\/p>\n
Yeah. But so, you have the arbitrage STR operator and you also have a property manager or did you remove the property manager together?<\/p>\n
I removed the property manager because for me, those things just don\u2019t break that often. Maybe once a year I have to call a plumber and oftentimes, I have an assistant, too. I just have them do it. And so, it\u2019s not really. It\u2019s sure it\u2019s me managing it, but it really doesn\u2019t take much time at all.<\/p>\n
Cool. Well, thank you for that breakdown.<\/p>\n
Yeah. Would you want to go through just the numbers of a house hack for us real quick? You said maybe like $500 to $1000 on average, someone can get from the Denver market. But can you maybe show what the purchase price would be? How much you\u2019d have to put down? What maybe your interest rate would be? And then what they should charge per room? And how much you\u2019d get back in your pocket?<\/p>\n
Yeah, I can go through my most recent one. Back in July of 2021, I bought this property in a pretty up and coming area of Denver. It was actually a seven-bed, three-bath. And in this, it\u2019s called Virginia Veil. It\u2019s right next to Cherry Creek. It\u2019s a really up and coming area. It\u2019s really nice. What I liked about it\u2019s got that top-bottom setup with that big utility room that I described earlier.<\/p>\n
And so, I bought this for $585,000. I can\u2019t remember the interest of my mortgage. It was 3 point something, so interest rates were lower back then. And then my mortgage on that is $3,000 a month. So, that was my mortgage. I ended up making one of the bedrooms downstairs into a living room. And so, now it\u2019s a six-bed, three-bath with a living room and I converted that, that downstairs to an Airbnb. I really did not like managing the Airbnb and so, that\u2019s when I got the idea of doing the arbitrage with somebody else.<\/p>\n
And so, somebody\u2019s renting that downstairs from me for $2,400 a month and she\u2019s putting on Airbnb. And I think she\u2019s making a lot of money because I haven\u2019t heard any complaints. So, that works. So, in Denver, you really can only have one Airbnb per residence. And so, that was an issue in Denver Metro and this one is in Denver Metro versus in the suburbs, the rules are different. And so, the upstairs I have a traditional regular tenant and they pay $2,400 a month as well.<\/p>\n
And so, you can see the difference there. It\u2019s $2,400 for a top unit, three-bed, two-bath. It\u2019s pretty nice with a backyard versus the same exact amount for a basement unit, three-bed, one bath, no backyard. And so, that is making me $4,800 a month in rent on a $3,000 mortgage, so I\u2019m making $1,800 over the mortgage. And I set maybe $400 or $500 aside for vacancy. Vacancy, I do pay utilities on that one and all the other things you\u2019re reserved for.<\/p>\n
And so, I\u2019m making a little over $1000 a month on that property right there. And that\u2019s not a home run, out-of-this-world deal. I found that very quickly and just went with it and so, you can get stuff like that all day.<\/p>\n
That is so cool. I love that you looked at that property and you\u2019re okay, I want to do short-term rental. And then you\u2019re like, \u201cYou know what? It\u2019s not for me. Let\u2019s twist and turn it. And let\u2019s do Airbnb arbitrage.\u201d Especially, that\u2019s one of my favorite things is looking at a property and finding different ways to pull revenue off of it. And also, having those different exit strategies on it where if something\u2019s not working, \u201cOkay, I can do this now with that property.\u201d<\/p>\n
And Craig, just really quick. You say $1000 pretty nonchalantly, but it\u2019s a pretty healthy amount of cash flow for one property. My first long-term rental, I was making 150 bucks a month, so you did almost 10x that. So, don\u2019t sell yourself too short there.<\/p>\n
One of the thing I want to highlight. You talked to Ashley about multiple revenue streams, the different opportunities from a piece property. And episode 107, we had Kai Andrew on, and he talked about land hacking, which is similar to house hacking, but his was with land. And he was making 10 income streams off of one piece of land. So, if you guys go back to episode 107 with Kai Andrew, you can hear a little bit more about the cousin to house hacking, which is land hacking and how he set that up.<\/p>\n
We\u2019re going to have to give that one a listen.<\/p>\n
Well, Craig, thank you so much for joining us. We do have a couple segments here to go through. Tony, you want to take the first one?<\/p>\n
So, Craig, are you ready for the rookie exam?<\/p>\n
Oh, man, I didn\u2019t study. But let\u2019s do it.<\/p>\n
The future of your life depends on this exam, so luckily for you, I think you\u2019re going to do well, man. So, three questions for you, same three questions we ask every guest now. So, the first question is what is one actionable thing a rookie should do after listening to this episode?<\/p>\n
I think you should reach out to a investor-friendly real estate agent in your area. And just start asking questions and start having those conversations, so they can help. if you need some time to prepare, they can help you so that you know what to prepare. And so that way, when it comes time, you\u2019ve got your down payment saved up. You can hit that ground rolling versus getting all the education and getting the team together then. So, start building your team now.<\/p>\n
The next question is what is one tool, software, app or system, in your business that you use?<\/p>\n
For the house hacking piece, I would say Rent Ready is going to be the best thing that I\u2019ve seen. It used to be Cozy, but Cozy got crappy once apartments.com bought them. So, I always recommend Rent Ready now and yeah, they do great for the property management side if you\u2019re going to be managing your house hacks yourself.<\/p>\n
Awesome. Last question for you, Craig. Where do you plan on being in five years?<\/p>\n
Man, my future does depend on this.<\/p>\n
Are you going to chicken on me? We will.<\/p>\n
That\u2019s always a tough question. We just bought our forever home up in Idaho. And so, I think we\u2019re going to be there. We\u2019re going to be settled in there a little bit more. We\u2019re going to continue to grow the real estate team in Denver and maybe in a few different other markets and just try to help as many people as we can achieve financial independence through real estate investing. And so, similar to BiggerPockets mission, we have a very similar mission. So, yeah, we\u2019re just going to keep taking it day by day.<\/p>\n
And even better, I love Idaho. That would be my dream place to live out of all the places that I\u2019ve been to.<\/p>\n
Yeah. We\u2019ll definitely, come by and hang out.<\/p>\n
Yeah, I\u2019ll be in Boise and Coeur d\u2019Alene in June.<\/p>\n
We are in Coeur d\u2019Alene, so let me know, yeah.<\/p>\n
That\u2019s even better. That\u2019s amazing there, so good for you.<\/p>\n
Yeah, yeah. Let\u2019s at least grab lunch or you can come see the place, yeah. You can meet Grace.<\/p>\n
Cool. Well, let\u2019s give out a shout out to our rookie rock star, who is Jason Beckett this week, closed on units two, three, and four. He purchased a triple triplex in an incredibly hot and trendy Tremont neighborhood in Cleveland, and somehow managed to get it below asking with an FHA 203K loan. List price was $329,000. He got it for $290,000, out of pocket $15,200. The rehab was $70,000, which was built into the loan, which is part of the 203K loan. And his expected ARV is to be $400,000. And the rent potential is going to be between 1500 to 1650 per unit. So, congratulations, Jason, that\u2019s awesome.<\/p>\n
Well, Craig, where can everyone find out some more information about you and reach out to you besides showing up at your doorstep in Coeur d\u2019Alene?<\/p>\n
Yeah. Well, you\u2019re more than welcome to Instagram. I\u2019m the Fi Guy. We have a podcast of our own, too, called Invest to Fi. And if you\u2019re in Denver, you can always look at thefiteam.com as well. We\u2019re always happy to help.<\/p>\n
Well, Craig, thank you so much for joining us. We enjoyed having an expert on to talk about house hacking. I\u2019m Ashley @Wealthfromrentals, he\u2019s Tony @TonyJRobinson on Instagram, and we will be back on Saturday with a Rookie reply.<\/p>\n