How to Live For Free

About Me

My name’s Cam. I live in Rochester NY and have a passion for real estate.

A little background on me.

I went to college for engineering, got an engineering job upon graduating and quickly realized it wasn’t the right fit for me. I was an entrepreneur trying to fit in with the corporate world. A square peg trying to fit in a round hole. I needed change.

So I decided to completely throw 5 years of higher education out the window and get my real estate license! (the parents weren’t too fond of that decision) (but hey, one life). I currently work as a Realtor in the Rochester area and I’m enjoying every minute of it.

Although I’m not using my degree today, those years of school were certainly not wasted. Because midway through college I stumbled upon the world of real estate investing. And I was hooked.

I started reading real estate investing books like a mad man and consumed hundreds of hours of the BiggerPockets real estate podcast while commuting back and forth to school. I learned 10X more in my car listening to that podcast than I did in my college classes. 

That’s not a joke.

I learned how powerful real estate investing is and the freedom it can create for you financially. 

I decided I was going to become a real estate investor and I needed a way to get started.

House Hacking was it.

What is House Hacking?

The term “House Hacking” was coined by real estate investor Brandon Turner from BiggerPockets.com. The concept is straightforward: purchase a property in a way that your mortgage will be paid for you, ultimately allowing you to “live for free”.

I believe (as do many others) that house hacking is not only the best way to get started investing in real estate, but it’s one of the best financial decisions you can make. Period.

There are several different ways to house hack. If you want to dig deeper into other methods, shoot me a message and I’ll point you in the right direction.

But because I only like to speak from experience, I’ll be explaining the most traditional method and the one I’m currently doing. The small multi-family house hack. 

The Small Multi-Family House Hack

Most people think of the residential home market as regular, single family homes. 

But a significant portion of the residential market also includes small multi-family residences (duplexes, triplexes & fourplexes). 

These are basically mini apartment buildings. Each unit is a separate living space all within the same structure.

Which means that you can purchase one of these properties, live in one of the units, rent out the remaining units and use that rent to pay your mortgage.

If the rent from the other units covers your mortgage payment, congratulations. You my friend, are living for free.

And this is the best part: 

Banks & mortgage lenders treat these small multi-family properties (2-4 units) the exact same way as single family properties. 

Here’s what I’m getting at.

If you wanted to buy an apartment building (which is anything greater than 5 units in one structure), you’d have to use a “commercial” mortgage to purchase it versus a “residential” mortgage. 

Residential mortgages have much lower interest rates and better terms than commercial mortgages. A residential mortgage payment on a property would be much lower than a commercial mortgage payment on the same property.

You can use a residential mortgage to buy these small multi-family properties. You can qualify for the exact same financing as someone who’s buying a regular single family home.

Furthermore, as long as you’re honest and really do plan on living in the small multi and use it as your primary residence for at least 1 year, you can use what’s called an “FHA” mortgage. 

FHA is short for the “Federal Housing Administration”. An FHA mortgage is a government backed loan commonly used for first time home buyers who want to purchase a home but may not have the best credit score or don’t have a large amount of cash for a downpayment.

The most common FHA mortgage only requires a 3.5% down payment.

Yes, that’s correct. A $100,000 purchase would only require a $3,500 down payment (plus closing costs).

This is a HUGE advantage for you as it can get you into your first house hack with very little money out of your pocket. 

This is exactly the route I took to purchase my duplex.

How to Buy Your First House Hack

I like to model after people who are successful at the things I want to be successful at. 

There’s no need to reinvent the wheel when you can literally just follow a blueprint that someone else has created for you.

So this section will be exactly that. I’ll go through the steps to take to get your first house hack, show all the numbers & analysis on my own duplex and give some tips on how to navigate the process. 

Let’s do it.

Find an "Investor Friendly" Realtor

This is the first step that I took. And it was actually before I became a Realtor myself. 

Finding a reliable realtor who understands the rents in your local market and can help you run the numbers on potential deals is a huge leg up when you’re first starting out.

I went straight to BiggerPockets.com. This is basically the “facebook” for real estate investors and a global hub of all the information you’ll ever need to know to become a successful investor.

If you go to their forum section, you can search keywords to find local players in your market. I found a local Realtor in Rochester who owned rental properties himself and messaged him. We met up for some drinks, I explained my goals and we began our search. (He later became my mentor and convinced me to get my real estate license).

Start Analyzing Deals

As you begin to find potential properties, you should start analyzing the numbers on every single property you come across.

Go to BiggerPockets to learn how to analyze a deal. There are thousands of articles & videos to help you learn. They even have their own deal calculators on the site.

Your main objective when analyzing a house hack is to figure out the following 3 things:

1. What are the total expenses for the property
2. How much rent can you get from each of the units
3. Is it somewhere I’d want to live

If the income from the units you’re planning on renting out is sufficient enough to cover your mortgage payment, it’s probably a deal! However you’ll want to make sure the numbers still work in the scenario where you’ve finished house hacking, you’ve moved out and your unit is rented (that is if you plan on keeping the house as a rental property) (you should).

You’ll get better each time you analyze a new property, and you’ll start to be able to quickly identify deals as they come up.

Pull the Trigger

Buying a property can be daunting. Especially if it’s your first one. 

I was nervous as hell to start. But after looking at dozens of potential properties & analyzing deal after deal, my confidence started to build.

You’ll eventually have to make an offer if you want to buy a property. So believe in yourself, realize that you’ve done your homework and go for it!

And realize you’ll probably get rejected. Multiple times. It took me multiple offers and 2 deals falling through before I found the right one.

But like anything else in life, you just gotta keep trying. Every offer you make is one step closer to getting a deal done.

My House Hack

So as promised, here are the details & numbers for the duplex I purchased in November of 2019.

Overview

My best friend (who also happens to be very interested in real estate investing) and I partnered on this house hack. The mortgage is in my name (since I had a W2 engineering job at the time and was able to qualify for a mortgage), but the deal is a 50-50 partnership as we split all equity, income/expenses & management responsibilities. 

Property Details

Up & Down Duplex, 3 bedroom bottom unit (tenants) 2 bedroom top unit (Mike & I)

Purchase Details

Purchase Price: $172,500. Was listed for $185,000, we were able to negotiate them down

Loan Details

Mortgage: FHA 3.5% down

Interest Rate: 3.125%

Mortgage/Rent

PITI (mortgage payment): $1200

Rent from bottom unit: $1100

So our total cash into the deal after our downpayment and closing costs was right around $16k, $8k each. 

As far as other monthly payments go, we still have to pay utilities in our unit. But in terms of our mortgage, the rent from the bottom unit covers 92% of it.

Our plan is to live here for at least 1 year (per FHA owner occupied requirement), save as much cash as we can, rent out our unit and then on to the next house hack.

Once we’ve moved out and our unit is rented, the projected cash flow after all expenses & reserves are accounted for is $500/month, or $6,000/year. That’s a 37.5% ROI (return on investment) on our initial $16,000 invested! 

Try getting that kind of return in the stock market.

Tips & Advice

Here are some tips and things to keep in mind as you start the journey of getting your first house hack.

• Remember that you’ll need to be able to qualify for a mortgage. This means you should be working on your credit score & keeping your debt as low as possible. You’ll also have to make sure you have a W2 income, or at least 2 years of 1099 income if you are self employed.
• The key to being successful with rental properties is finding the right people to rent to. The last thing you want is a lousy tenant who trashes your place and doesn’t pay rent. We were fortunate enough to inherit awesome tenants and we make it a priority to treat them well and take care of them. If this doesn’t end up being the case for you and you need to find tenants, I highly recommend checking out Brandon Turner’s content on BiggerPockets to learn how to find, screen & manage tenants the right way. He also wrote a fantastic book you should check out, “The Book on Managing Rental Properties”.
• The idea of house hacking is simple, but it’s not easy. It will take time, effort and probably a bit of frustration before you find the right one. As I mentioned above, we had 2 deals fall through before we found this one. We literally had a duplex under contract and when the appraiser came to do his job, he pointed out that the moss on the garage roof needed to be removed because of FHA requirements. The owner didn’t want to pay for it so he tried to do the job himself, ended up breaking his hand in the process, got super pissed and decided he didn’t want to sell it to us anymore. I still remember how defeated I was and how it felt to be so close and have everything fall apart. But we decided to keep our heads up and move forward. Funny enough we found an even better deal 3 weeks later.
• You might be reading this and thinking “this is great and all but this really only applies to young, single people who don’t have a family and other obligations to take care of”. Well, allow me to just inform you that a previous engineering co-worker of mine is house hacking as we speak--with his wife and their 4 boys. 

“For every reason it’s not possible, there are hundreds of people who have faced the same circumstances and succeeded”. -Jack Canfield

Conclusion

I truly appreciate every single one of you who have read this far. I wanted to put this together because house hacking really has changed the financial trajectory of my life. And it has the power to do the same for anyone who has the drive to do it.

I wanted to wrap this up by demonstrating the power of real estate investing. 

Let’s play out the scenario where you house hack 5 times, and then keep those small multi’s as rental properties. 

For simplicity, we’ll use the same numbers and property type as my current duplex. This is what you’d be looking at after completing 5 house hacks:

Total Amount of Living Expenses Saved

($1,100)(12 months)(5 years) = $66,000

Total Cash Flow from 5 Rental Properties

($500/month)(5 properties) = $2,500/month = $30,000/year

Total Value of Rental Property Portfolio

($172,500)(5 properties) = $862,500 

And that’s not even taking into account appreciation since your properties are likely to increase in value over 5 years.

Furthermore, you’ll have been using your tenants money to pay down your mortgages and gaining equity in your properties every single month. You’d also be able to take advantage of incredible tax write offs with all the real estate that you own.

But the number that’s really life changing is the cash flow that the properties will be producing. $30,000/year from 5 rental properties. That’s a modest salary. Imagine owning 10 rentals. That’s very achievable.

This is really just the tip of the iceberg when it comes to learning about real estate investing and the power it has to create financial freedom for you and your family. I know I’ve plugged BiggerPockets multiple times (I swear, they're not paying me), but if real estate investing is something you want to learn more about, you really should head over to their website. BP has changed my life, so it’s the least I can do to return the favor.

Again, I appreciate everyone who took the time to read this, I hope I was able to provide some value. 

And honestly, if this helps just one person, it was worth the hours it took to make.

For a lot more amazing info on house hacking, check out Craig Curelop’s book, “The House Hacking Strategy”.

If you have any questions or just want to talk real estate, shoot me a message! Here are my social handles:

I wish everyone the best.