Jaren got into his latest house hack about a year ago, and he has quite the story to tell.
In this episode, we're going to dive into the nuts and bolts of how he found this deal, what the numbers look like, what the experience has been like so far, and why it's the best property he's ever lived in.
We're also going to cover some big news about the latest course from REtipster: House Hacker University. As always, we've put a TON of time, effort, and love into this course. If you have any interest in using your house to create another stream of income, this is something you'll want to check out!
Links and Resources
- House Hacker University
- What is House Hacking?
- House Hacking: The Official Guide on How to Live (Almost) Mortgage Free
- What is a Land Contract?
- FHA Loans Explained
- VA Loans Explained
Episode 103 Transcription
Seth: Hey everybody, how's it going? It’s Seth Williams here and Jaren Barnes and you're listening to the REtipster podcast. And today we're talking about a deal that Jaren kind of got into about a year ago now. It's a house hack, and this is a deal that I've actually wanted to talk with Jaren about on the podcast for a while because it's pretty cool. It's just the circumstances of how it came about and the numbers. And it's a really cool place. I haven't actually been there yet. It's still on my to-do list, but it sounds like a really cool property. It's not his first house hack, but it just seemed like a really interesting case study for us to dive into a little bit, just to learn all about how he did it and how it's working out for him.
And also, over the past year, as he has been diving into this house hack deal and making it work, he's been putting together the next REtipster course called House Hacker University. And we've been spending many, many months now. Mostly he has been spending the time putting together the videos. I've basically just been reviewing him and saying “It's horrible Jaren, do it over again.” I'm usually nicer than that, but we've been going back and forth in putting this course together and I don't know, it felt like it was worth our while to dedicate a podcast episode.
Not only is he talking about his house hacking experience, but also diving a little bit into the course and what that's going to be all about and what you can expect from that if you're somebody who is interested in house hacking. So where do we start at Jaren? Where's the best place to start on this?
Jaren: I think the best place for us to begin, Seth, is kind of giving the backstory as to why house hacking became a primary focus for me in the first place.
Seth: Actually, I know an even better place to start. Why don't we talk about what is house hacking for the few people out there who might not even know what we're talking about?
Jaren: Yeah, I think that's a good place to start. So, house hacking, the way I define it, it's a strategy where you offset your monthly housing costs, whether that's rent or a mortgage or what have you, by income generated from your primary residence. I think the most common means of house hocking is by owning a 2-4 unit and living in one and renting out the others.
But there are other ways to generate revenue for your primary residence, like renting out rooms to roommates, renting out a basement, Airbnb, doing short-term vacation rentals through something like Airbnb or Vrbo, if you have an in-law’s suite or you have again, a basement or even an addict or some other space that's not really being occupied in the house, you can figure out ways to generate income from it. And then you can use that income to offset your mortgage costs.
Why I think the most common strategy is a 2-4 unit where you live in one and not the others is because you can use very low money down financing through an FHA loan or other options out there and put very little money out of pocket and still get great financing because anything under five units is perceived as a residential property in the lending world.
So, you can get into a deal very inexpensively, and then you can have tenants or other means to offset your cost. And if you play your cards right, you actually could live mortgage-free. Well, it's not technically mortgage-free, it's just you don't pay anything out of pocket because your income is large enough to cover everything. So, that's kind of the gist of house hacking.
Seth: Yeah. And house hacking, the concept is nothing new. This is something people have been doing for probably centuries. But the term “house hacking” was coined by Brandon Turner at Bigger Pockets a number of years ago. And that's kind of caught on, that's like what people call it now. And they've obviously got tons of great information on it as well. Maybe just talking about the specifics of your deal. Is it worth even diving into the first house hack you did? Or should we just skip over that?
Jaren: I think we can dive into that a little bit. It was interesting because I got it through a land contract and I got it through a direct mail campaign. So, there's an interesting element of that, but we should probably focus primarily on the one that I'm in now because this is my dream house and really awesome. The other one was like 950 square feet.
Seth: This is more of like a permanent place you want to stick around.
Jaren: I don't really plan on selling this property. I really like this property.
Seth: Well, let's dive into that then. So, how'd you find this one? Was this direct mail too? Or did you find this somewhere else?
Jaren: Yeah. This one, I was living in the duplex that I was in a land contract on. And we had our first child who was kind of becoming a toddler and my mother-in-law lived with me, my sister-in-law lived with me. It was me and my wife. And it was like 950 square feet and there just was not enough space. So, me and my wife were just aware that we had to figure something out and we were actually—I don't know if we knew we were pregnant yet with our second or I think we were—we were just starting to talk about like, “Hey, the rubber needs to meet the road. We need to figure out what we're going to do.” And I think the land contract was actually coming to where we either had to figure something out or refinance and pay off the guy or something.
So, my wife and I were in a spot where, in the beginning of 2020, I went to a meetup in Chicago and I reached out to some guys that I have a reputation of specializing in house hacking, like properties for house hacking. And they connected me with the lender, I got pre-approved. And then I forgot exactly what went down, but we ended up holding off on wanting to move to a suburb of Chicago.
We actually originally wanted to move closer to Oak Park because that's where our church is. And it's quite a bit of a drive from Munster, Indiana, where I live, than in the Northwest suburb of Chicago. It's kind of weird. People sometimes don't understand how does this all work? But Chicago is actually the local metropolitan area. I just happened to live in the Indiana side. So, if you are on a particular highway going south from Chicago, I'm one exit into Indiana. I could turn one corner and I'm four minutes from Illinois. I live right on the border.
So, all that being said, I got pre-approved, I got all set up and then I held off on it for a couple of months, and then COVID hit. And it was like, “Oh no,” it was like right there in the beginning when all the lockdowns were in full effect and we're all sitting there like, “Is my land business going to be okay? Is REtipster and everything going to be fine?” And everyone is freaking out.
And I remember I was sitting downstairs, my wife was upstairs and all of a sudden, I heard her start screaming and I'm like, what the heck is going on? She came down all excited. And she said, “Babe, I found our triplex, I found our triplex.” And it was literally around the corner. So, it's hard to describe, but I'm a few blocks down, but you just pretty much go down the street of our duplex, and then you turn right and you go down like maybe four blocks, and there's the triplex.
And I went there and I didn't know if I was going to be able to get approved. I didn't know where my financial situation was because I was a little bit scared with COVID and I didn't really want to use my land business because I wasn't sure how stable the income was going to be going into COVID-19.
But we ended up walking through this property. My wife loved it. I loved it too. I mean, it looks like a castle from the outside. And it turned out that I was able to use the pre-approval letter from the January, February time, using the same lender. And this particular lender got me an FHA loan, but the way things were, and I don't fully understand how this all works, but he's able to structure the loan where there's a credit at the end, at the closing table where you can offset your down payment even further.
So, we bought the property for like $285,000 and 3.5% of that it's close to like $12,000. I'm just shooting off the top of my head. I don't know if that's the exact amount, but it's somewhere around there. But after he did all of his things on his end, at closing, I only had to bring $2,618 and some change. And that was awesome.
Seth: That’s a really low down payment. I mean even with the FHA loan. Did you ever get to the bottom of how that was possible? Like what exactly happened?
Jaren: Yeah. I sent him an email in preparation for the House Hack University to ask him what he did. And essentially, he structures like a buyer's credit and I think that the seller has to agree to it, but somehow, they took a credit out of the loan, I think is how it went down. And don't hold me to this because this is stuff above my pay grade and I'm not a lender. I don't really understand how it all works. But he works with a lot of house hackers and he does it all the time and it's totally legitimate and it was awesome. And that's the power of working with a creative lender that knows what he's doing.
I mean, I was also kind of freaking out too, because I actually didn't know the down payment amount the entire time we were closing and I kept asking, “Hey, how much am I going to have to bring to closing?” Like over and over again and I didn't know until the day before closing. And then I saw the dollar amount and I was like, “That can't be right.” So, I called my agent, called the title company, and called the lender and said, “Is this right?” And they're like, yup. So, it was pretty awesome.
Seth: Yeah. Remind me. Was this your first FHA loan?
Jaren: Yes, it was.
Seth: I thought I remember back when we were talking about this, wasn't that a question like if it was maybe a finding how like you're not limited to only using the FHA loan one time. Like, it's a first-time home buyers loan, but you don't necessarily always have to be a first-time home buyer or something like that? Isn't that the nuance that a lot of people don't know about?
Jaren: That used to be a standard where FHA could only be used once as a first-time home buyer, but then they've over the years changed that requirement. So, there are really strict requirements around the FHA loan. Like they don't want you to have one FHA loan and then tomorrow go buy another property with another FHA loan.
But if you've owned the property for at least a year, the requirement is that you have to live at the property for at least a year. And the next property needs to be a hundred miles away from the current property. It's either 50 or 100. I forget now. It's in the House Hack University though.
So, you have to live far away or as a caveat to that, you can justify the move. So, if you have a life-changing circumstance, like you get a new job or you have a child or your in-laws come and move in, you need to be able to justify it and get it approved by FHA to move forward.
So there are some workarounds as some things that you can do. But what I'm curious about, I'm wondering, because I'm a real estate investor and I just happened to follow the trends of market growth if every two years or every year or whatever I moved to, let's say Florida, and then Texas, and then Colorado, can I perpetually have like a huge amount of FHA loans? Because if I can, then I can every year to two years, move and justify moving because I'm a real estate investor. I need to go where the getting is getting good. So, I’m curious if that's actually something you can do.
Seth: Yeah. And this stuff about using the FHA loan or a VA loan if you're a veteran, that kind of thing. A lot of people who are interested in house hacking, part of the reason why, and I don't want to speak for everybody, but a lot of people is because they're not like mega-rich and they don't have a ton of money or they're at least very budget-conscious, where they want to build wealth in a way that somebody else is doing it for them.
And in a standard conventional loan, you have to put down like 20% or 25% of the property's value, which is a lot. And using an FHA loan, you’re only putting down 3.5%, or in your case even less. And that is a huge advantage. And ultimately the payment, I don't want to say it doesn't matter, but like it's a much less significant issue because your tenant or tenants are paying for it. So, the whole FHA loan thing works really well with the house hacking strategy. And that's what you used. And you talk about it in the course quite a bit as well.
Jaren: Yeah. And I do want to address something. A lot of people think that with house hacking, you have to have a house where you're getting the mortgage 100% covered by the tenants. And that's not necessarily true. There are circumstances where it makes sense for you to pay a little bit out of pocket. If you wanted to live in an expensive area that's in high demand, offsetting your mortgage can be just as powerful as being mortgage-free. Like if you only had to spend $500 a month on your mortgage, that's a win. That's awesome. That's a good thing.
So, if your objective is to live 100% mortgage-free, you might have to be in a situation where you're on a less desirable side of town or further away from things that you enjoy. But if you're willing to pay a little bit, you can live in a great area and it's a lot more feasible. There are much more options through house hacking where you're paying, like, let's say $500 a month. Then there is absolutely being 100% mortgage-free. Now exceptions do exist. You can definitely have your cake and eat it too, but you might need to do a little bit more research and a little bit more searching to find that perfect situation. And for me right now, I am paying about $700 out of pocket for my mortgage.
Seth: Before we go there, why don't we just take it from the top? What is your normal mortgage payment? Like mortgage plus escrow plus insurance plus all that stuff.
Jaren: It's roughly $2,300 - $2,400.
Seth: Okay. And you're paying about $700 of that amount.
Seth: Okay. Gotcha.
Jaren: I have one tenant that pays $700 and then one tenant that pays $975. So, total, that's $1,675 that I'm getting in rental income. But what's really cool about my property is that my tax-assessed value was like $365,000. And I bought it for $285,000. So right now, actually I have it on my list to reach out to the tax assessor and say, “Hey, I need to appeal this because I bought this at $285,000 and I got appraised for $285,000. So why are my taxes assessed at $365,000?" So that's going to adjust my property taxes, which is also going to decrease how much that I have to pay on a monthly basis.
And then second to that, Indiana has something called the homestead exemption, where if it's your primary residence, you get a discount on your property taxes. So, for my primary residence, I actually went a few months back and got kind of like an estimate of how much that's going to change my taxes. And it's about half.
So, between the two of them, I might be in a situation where I'm actually paying nothing out of pocket for this property. Worst case is probably going to be like $100 or $200 somewhere around there.
Seth: Did you end up increasing rent for the tenants? Actually, maybe just the tenant discussion in general. Were there tenants there already when you moved in? Did you have to kick anybody out? Did you change rent? Do you have any awkward conversations? What has it been managing tenants who are sharing a wall or a floor, a ceiling with you?
Jaren: Yeah, one of the tenants was here. She's been here 19 years and she's lived through three owners, which she knows more about this property than even the seller did. She's been a wealth of information and is a really sweet lady, single lady and she's awesome. I did end up raising her rent a little bit. She is not on the lease. She requested that she remains month to month. She was so helpful and to be honest, she's a pretty amazing tenant. And I never hear any complaints from her. She's always been really helpful and those are kind of hard to come by. Most likely if she's been here that long, she's not going to go anywhere. So, I raised her rent, I think, $50 a month and I might raise it every year or every two years or something and just say, “Hey, we got to stay on pace with inflation” or what have you.
I could rent her property for at least $850. So, I am giving her a discount, but it's because, I mean, for one, if she moves out, I have to renovate her unit and I have to do paint and I have to do some basic touch-ups before I can release it. So, I don't have to deal with any of that and I get $700 a month. And then the other one I'm getting $975. So, it's slightly bigger, and that one it's pretty solid.
It's funny you asked if I had to kick anybody out. The first person that I rented that property to didn't end up working out. So, I listed it on apartments.com. I did a background check and everything, but he ended up losing his job and he actually got into a massive car accident, where he was like walking on crutches. It was really sad to see. But he pretty much just texted me one day. He's like, "Jaren, I lost my job. I don't know when I'm going to be able to work again. I'm not going to be able to stay here." And I could have been a jerk and be like, "Nope, you have a lease buddy." But why would I do that? And I just said, "Yeah, man, go for it. And I'll just relist it."
And he was a little bit more troublesome. I have a smoking policy, like a no smoking policy on my property. And there were a couple of times I caught him smoking and some other things. And there was some weirdness. I'm kind of glad that worked out that way because the current tenant is, again, just no problems. It’s just really easy to work with. I barely see him. And it's awesome.
Seth: Hopefully you just look out and get awesome tenants and you never have any awkward confrontations. But how does that work when you do have to have an awkward confrontation and they're living right there, or what if you happen to get a tenant that you don't realize is a psycho until they're there and your family is right there? This is my fear mentality kicking in, but do you ever worry about safety? Is that ever a weird thing for you?
Jaren: Yeah, it's definitely something that you have to have in the back of your mind. So, I think it's good to have some clear separation between you and your tenants. Something that we teach at House Hack University is there's a difference between being friendly and being friends. I don't think you should ever be friends with your tenants. You should not be grilling and hanging out or any of that because you need to reserve enough separation where if you need to have that awkward conversation, you can, whereas if you start entering into the friend zone, it’s just a lot more complicated because now you have relational capital that they can leverage.
So, I do think that it's important to keep things separate. The way the property is designed too, we don't have any common areas. So, they have a separate entrance on both the front and the back. Technically I do walk through their side from my garage because I have a garage and they have a garage, but their garage is a detached garage in the backyard. So, I rarely see them. I do hear them occasionally. It's something that you're going to just have to live with. It's kind of like living in an apartment, like I'll hear footsteps. And sometimes I might see them outside and I just said, “Hey, how's it going?” And if they need something, if something breaks. I actually just found out that I have squirrels in my attic. So, my dad is in the south and he called them a critter getter. So, I have to find a critter getter to remove squirrels from the attic.
But yeah, by and large, it’s not that big of a deal. I do think that on the vetting side, that's when you need to really put your due diligence hat on and call prior references, call prior landlords, make sure that you interview them, try to get a gauge of who they are very, very clearly before you rent to them because this is your family.
Now, one of the things nice about house hacking because this is your primary residence, a lot of the fair housing laws aren't as applicable or as applicable to you. Because as your primary residence, you have more say in who you can rent to and the rules that you want to have in your house. Like, I don't want cigarettes and marijuana smoke around my kids. So, I would put it right there in the lease “no smoking.” And if you're going to be smoking, smoke outside. And I don't know, a hundred percent, if this was just like a normal rental property, if I had the ability to tell them they can't smoke in their own place. I don't know. I think it depends on what state you're in, and what have you.
But there are a lot of fair housing requirements of not discriminating against. And obviously, I’m not encouraging anybody to discriminate against anybody, but this is your home. So, you do have a lot more control of who you rent to, which is nice. So, it is still a risk though. And if you were really concerned with it, you could do on a new tenant, shorter lease and say, “Hey, I'm going to do a three-month lease or a six-month lease. And we can check in and see how it goes.”
But the best-case scenario and what most likely things will turn out as they live their life, me and my family live mine. We're neighbors and we might say hi to each other and that's about it. So, it's actually not that bad, but it can be. And that's something that you have to be aware of and put the right things in place to ensure you don't get into a bad situation.
Seth: Okay. So, when it comes to managing these tenants, like collecting payments and screening them and getting leases signed and all that stuff, are you using special software for that? Or are you doing it manually or how are you handling that aspect of it?
Jaren: Yeah. So, for me, I'm using apartments.com for pretty much everything. Apartments.com is free. And if you have ever heard of a cozy.co, that was a pretty popular management system for smaller landlords, or are kind of mom-and-pop landlords. And they just bought Cozy and they're kind of like building their own version within apartments.com and it's pretty cool. I'm able to list properties. I'm able to screen tenants, process applications, look at background checks and they handle all of that within the backend of apartments.com. So that's been kind of my go-to.
I could do otherstuff. Like I could process payments if I wanted to and collect rents through it. I don't, just because my tenants are not as tech-savvy and it's easier for them to just write me a check. But because I live so close, it's pretty cool. They just put a check in my mailbox and normally even before rent is due, I have rent for the next month. So, it's really streamlined that way.
In terms of managing service requests or stuff, they just text me if something's wrong. I realized that I have squirrels in my attic right now, which is not fun, but I have to go and handle that. And I think the only other time I've ever had any real issues is one tenant that's been here like 19 years. She had her sink clogged once. And all I had to do is like unscrew the little nozzle and just clear it out. And then it worked again.
And then her stove was really old and it was almost like inhumane for her to have that. So, I think she was like down to one burner and she didn't tell me about it because she lived here for years with that thing before I was here and then her burner stopped. And then, I just ended up getting her a new stove.
And so, there will be things like that that do come up. And that is one of the biggest drawbacks of house hocking is that you have maintenance costs for sure that you're going to have to take into account. It's not a matter of if something's going to break down, it's a matter of when, because I have three units, I live in one, but that means I have three times the amount of things that can go wrong and break down.
Seth: When it comes to lawn care and that kind of stuff, are you mowing the lawn yourself or are you hiring people to do any of this stuff? Like how big of a hassle is this maintenance thing? I've never been a property manager myself. I want nothing to do with that. And I don't know that you're necessarily forced to do that, but it does make sense for you to do that because you're right there and it's not a huge job. Has it been much of an inconvenience on your life in any way or not so much?
Jaren: Not me. Because I really understand the power and benefit of staying in your lane and doubling down on your strengths. I'm not a mechanically oriented person at all. And I've tested it out. I really have. When I went with this particular house, actually, there were some renovations that we did on the unit that we're in. And I was very hands-on and very involved. And through months of being involved in all that, I came to the conclusion that, “Yep, I was right the whole time. I really shouldn't be doing this stuff.”
Because when you think about it, let's talk about mowing the lawn. I pay somebody to mow the lawn because let's say it takes 45 minutes to an hour to mow the lawn. And you have to do that once a week, once every two weeks. Let's say it's four hours a month. In those four hours, if I was calling back sellers or I was building content at REtipster, would it be more valuable, more fulfilling, and ultimately make me more money? And the answer is yeah. With what my skill set is I would be better off. I'd be adding more value to the world and to myself doing other things than mowing my lawn. So, it costs me $25 a month.
So, I think that you have to search around. We actually talk about in House Hack University, there's kind of a two-tier pricing system when it comes to construction costs and labor costs and things of that sort. There's kind of like the premium version, which is kind of a rip-off. And then there's a price where people who are familiar with contracting and the whole world of hiring a maintenance type work that there's a cheaper price that a contractor would pay another contractor for. And so, you look around and I could've been paying $60 a month, but I'm paying $25 to a guy, he's a young guy in his twenties and he's a really nice kid. He does landscape. And there’s a 16-unit right next door to my property. And he did the maintenance for them. So, I just said, “Hey, how much do you charge?” So, I'm paying $25 a month and he comes every two weeks and it's pretty seamless.
Seth: Yeah, when it comes to renovations and stuff, how good or bad of shape was this property in? And I know you made some changes. Was it just to your unit that you're living in, that you made these changes to? Or was it the other units and where those necessary changes or were they just kind of like, “Yeah, I just want it to be nicer, so I'm going to make it better?”
Jaren: Yeah. So, it was definitely more of, “I just want it to be nicer so we're going to make it better.” We did do a little bit more stuff in the $975 units. So, we replaced some of the flooring with the flooring that we have on our property. And we did some work in the bathroom. The shower had some water pressure issues. So, we got that looked at and fixed and all of that. So, I mean, it was not crazy. And then we paint it. That's just to get a new, fresh coat of paint and that was pretty much it on the other unit. But in ours, because this is a quasi-permanent spot. We were approaching it as though we could live here forever. I don't know if we will, but we're approaching this property as this could be our long-term place or one of, at least in the next few years.
So, my wife has been really patient with me and has put up with a lot of kitchens that she did not like. And so, this one, she's like, I'm getting my kitchen and made it really, really clear. So, we removed the wall and we added a second bathroom. So, where the sink sits in the second bathroom was where the kitchen originally sat.
And so, we moved the kitchen a little bit further. We completely redid the flooring and then renovated the second and the first bathroom as well. So, we did quite a bit of work on it, but we didn't have to. It was definitely move-in ready. And the kitchen was a little funky. It had checkered tile and it was all red and weird, but in terms of, could I have just sucked it up and lived with it without paying a dollar in innovation? Absolutely.
Another thing too was this office. I'm actually sitting in an office right now that didn't exist. It was just a raw basement. So, adding the things that we've always wanted in a house was important to us, but it was more of a choice. It wasn't like we needed to do it.
Seth: Yeah. Your office is pretty sweet too. It's way nicer than mine. It's twice the size and it's pretty cool. So, I haven't actually seen it with my own eyes, but I've gotten the FaceTime virtual tour of it. It's pretty cool, man.
Jaren: Yeah, it’s definitely my dream house so far. Even from my childhood, this is my favorite house that I've ever lived in just because it has a lot of character and a lot of space. And if we were to stay term, we could fence in the backyard and have even further separation from the tenants because there's a path where I would like give them a yard and have us have a yard and they would have a clear pathway to their garage and my kid could play in the backyard and then we could finish the basement too.
And there's even a spot where if I wanted to get crazy and add a fourth unit, I could over my garage. So, there's a lot of further potential here that we could do if we really wanted. And it's just exciting to come home. Like it's weird. For a long time, I was like, “Oh, I always want to leave.” And every day, at some point I wanted to just get out of the house because I was cramped. And I didn't know that there was a situation where I could just love being in my house and being a recluse.
Seth: Yeah. I remember my first house, in some ways it kind of reminded me of your previous duplex, just in terms of the size. My first house was like 900 square feet, horribly leaky basement. And it just drains on you when there's just like, I don't know. The layout is weird and you don't love being there and it's just got problems everywhere you look. And when you move into a step or two up, it's just nice. It's pretty big, just like mentally, it helps out a lot.
Jaren: It really does. Yeah.
Seth: And another thing I just wanted to reiterate. I know we kind of touched on it earlier. Some people get into house hacking because they want to have zero housing costs, but a lot of people use it just because it enables them to live in more expensive markets or neighborhoods that they otherwise would never be able to afford. And that equity is built on somebody else's dime for the most part. So, it's kind of a thing where I know your market, where you're at Jaren, and the one that I'm in, neither one of these markets are like super pricey, ridiculously expensive ones. But I know there's plenty of big cities out there where it's just hard to own a home because it just costs so much. And this can be one way to bridge that gap and make it more feasible.
Jaren: Yeah. A hundred percent. If you wanted to live in the San Francisco Bay Area or you wanted to live in New York or somewhere that was much harder to afford, you have to run the numbers and have it make sense, but it would be way better to have extra income because in a lot of those markets rent can be super expensive too. So, if you can get great rent and really offset your mortgage costs, even if you're in the Bay Area, you were paying $900 or $1,000 a month, for some people that's unheard of and that's unreal.
And that could be a really big win because not only are you just paying $1,000 but over time, your mortgage is getting paid for. So, your equity is growing on somebody else's dime. That means that when you sell it, that's the money that you're actually going to walk away with at closing between how much you owe on your mortgage and how much you can actually sell your property for. So that's a big deal because it's like, you're not doing anything and you're just waiting, owning a property, paying your normal quasi cheap or even very cheap mortgage costs. And then when you sell, it's like, “Oh snap, I actually am going to make a lot of money on this property.” It's pretty sweet.
Seth: Yeah. And the reason that house hacking is always done with like a 2-4 unit. Like why couldn't a person do this with like a hundred-unit apartment building? Is it because of the FHA loan requirements? Is that the main thing?
Jaren: Well, it depends. You can do that, it’s just if you go above five units, you're going to have to use commercial financing and commercial financing requires a higher down payment. I think it's around 30% typically. I think some loans do exist out there for like 25%. But if I remember correctly, it's somewhere between like 25% and 35% down.
Seth: It kicks a totally different ball game in terms of how much money you need to have to work with and the management process and all that.
Jaren: And I think you have a little bit of the laws of diminishing returns coming into effect. Because even if you are living for free on a monthly basis, if you spent $100,000 or more in order to get into the property, you could probably spend that $100,000 elsewhere. Now a hundred units is still a hundred units and probably has other benefits besides just house hacking, but if we're just looking to offset your mortgage, I mean, you can own a house outright for $100,000.
Seth: Do you want to dive into the course a little bit? Just what that's all about? Like what a person could expect if they just check it out that particular course and learn more about house hacking and how you're able to do it and a lot of the tips and tricks you've learned a lot along the way. What does a person get from this kind of course?
Jaren: I think the main objective of our course is to get you from not being a house hacker to being a house hacker. So, it gives you everything that you need from how to find a property, how to underwrite a property, how to finance the property, how to manage tenants. It kind of gives you A through Z on everything you need in order to become a house hacker for the strategy of buying a 2-4 unit and living in one and renting out the others.
And we do have some bonus modules in there about alternative ways to house hack like renting through roommates or Airbnb. But the bulk of the content is everything that you need in order to become a house hacker. So, pretty much like this whole start of the course was I just stepped into an incredible housing situation. And I was like, the world needs to know about this.
And a lot of the resources that are out there, there are some books and there are some podcasts and some articles that are helpful, but there's nothing that I've found that systematically is like, “Hey, you can get a house this way, this way, this way, or this way. And if you do these things, here are the pros and cons, and here are the step-by-step ways to go about it. Here's everything you need to know about financing. Here's how you find an investor-friendly lender and how you vet them.”
There wasn't kind of that systematic approach. And so, I realized, hey, we really need to provide this value at least to our favorite people in the world, the REtipster community. So, that's what kind of inspired the whole thing. And that's what you get out of the courses. It's an A through Z process to get you to become a house hacker.
Seth: Yeah. And if anybody listening out there, if you've ever been doing an REtipster course, or just read our blog post and that kind of thing, you know that we don't really mess around. Like if we're going to make a course, it's going to be good. It's going to be very comprehensive and thorough. And that's really what this is.
Several different sets of eyes have been on this. We've gotten feedback from a lot of different people from different beta testers and that kind of thing. So, if you're just in this strategy, this is the thing that's going to help you get there. And I am curious Jaren, I look at your situation, obviously, it's working out very well. Part of me wonders, did you just get lucky, or is this something that anybody could replicate?
Jaren: A hundred percent something that can be replicated. I don't know if you're going to be able to pay $2,600 out of pocket for a property, but definitely within $5,000 - $10,000 out of pocket, a hundred percent, you can repeat this until the cows come home.
Seth: And that does sort of depend on the property you get and how much that cost in the first place. It's kind of a multiple of that.
Jaren: Right. And the market too and all that stuff. But I live in a really awesome area. There are a lot of doctors here. In the Northwest Indiana region, it's more kind of the upscale A-class neighborhood, kind of, and I'm 45 minutes from downtown Chicago. So, if I want to do anything, it's all within an hour's drive and that's a pretty cool situation.
I do think that you have to get super clear on what you want, because if you just kind of stumble into something kind of ambiguous, “Oh, I kind of sort of want to live mortgage-free. That's like my priority but I kind of want to go over here. I love these areas,” and you don't really know clearly what you want, you're going to, I think, struggle. But if you really do the appropriate soul-searching and get it locked down on what's important to you and your family, you can go and find a house hack situation that will get you there.
Seth: In terms of the stuff that is covered in the course, should we just run through the quick table of contents of what each module includes?
Jaren: Yeah, sure. Let’s do it.
Seth: So, module one, we've got house hacking fundamentals. What kind of stuff do you talk about in that first module?
Jaren: Yeah. So, we pretty much just cover the ins and outs of what house hacking is and why ultimately, it's the best form of housing. Now I say that with a grain of salt, because it all depends on what you want in your lifestyle, right? If we talk purely financial though, house hacking is the best option compared to renting or owning a single-family home because you're building equity and you're reducing your costs or eliminating your monthly costs for housing. And that's really hard to beat from an ROI standpoint.
And then we also cover kind of what the cons are to just be aware of because, with everything in life, there's pros and cons with house hacking. There are some pitfalls that you need to be aware of and do some things to avoid those pitfalls. So, that's kind of what we've covered in the first module there.
Seth: Gotcha. And then module two is all about finding a property. So, what's that all about?
Jaren: Yeah. Whether it's through using an investor-friendly real estate agent and how to find one and vet one, whether it's through wholesalers or direct mail or finding things through online directories, we cover the primary ways to find a property for house hacking, and then what you want to do in each one of those situations.
Because if you buy a property from a wholesaler, for example, most likely the property is going to need more work than if you found one through a real estate agent. So, you have to kind of navigate the waters between the two differently. So, we kind of go through all the ins and outs of each option.
Seth: And then module three is all about running the numbers and managing rehab costs if you're doing any rehab. All of these modules are obviously important, but this one's pretty huge just because your numbers and your assumptions determine everything. And whether you even know what you're doing in terms of how to look at the different variable costs and all that. But what are all the ins and outs of what you covered in this one?
Jaren: Yeah. So, in this one, we cover due diligence. So, what goes into running due diligence on a property that you're considering as a primary residence, we talk about how to run the numbers of identifying how much your monthly mortgage payments are actually going to cost before you have a loan in place.
And then we also show you how to run comps on rents, because it's a little bit different than houses. It's pretty much the same high-level principle, but the data is different because we're obviously dealing only with rental costs instead of housing costs. So, we go through how to do that.
And then essentially as a house hacker, you need to figure out how much am I obligated to pay in terms of a mortgage, and then how much rent can I get for a property? And am I okay with the outcome of this particular house? So, if this house can produce $2,000 a month in rental income, but it costs $2,400 and I'm out of pocket $400, am I okay with that, am I not okay with that based on my goals. So, that's really the biggest thing.
And then the last lesson is managing construction projects because contractors can be a big pain point if you don't know how to manage them. And unfortunately, it's pretty typical for contractors to be willing to rip you off and take all the money that they can get from you and not feel bad about it. So, there are just some good best practices that we put there for a managing contractor.
Seth: Yeah. And then we've got a whole module all about the financing aspect of it which is super important. That's a big part of why this work is for a lot of people. Anything specific to talk about there?
Jaren: We did talk about four different low money down options in the conventional financing world. We do talk about seller financing because before this triplex, I did get a duplex that I lived in for I think a year and a half or two years on a land contract that I got through direct mail. So, you definitely can house hack through seller financing.
And then we also talk about how to find an investor-friendly lender and how to vet lenders to know that they're actually investor-friendly. So, we try to get you everything that you need in order to get a great financing situation. Because that also is a huge leverage point because if you get a great loan that can offset your down payment like mine, or it can also affect how much it's going to cost on a monthly basis. So that's a huge piece.
Seth: And then the final module in the course is all about managing the property, which I know we kind of covered a little bit of that in our conversation here, but what are the ins and outs of what you talk about?
Jaren: I just kind of give a lot of principles and rules of thumb on what to do with managing tenants that live next to you, or share a roof with you, because there are some waters that you have to navigate properly. And there are some things that you're responsible for, and that you have to be aware of and have the right systems in place and have the right boundaries and all of that. So, we cover kind of what I've depth my best advice on tenant management. And then also I'm going in-depth on apartments.com if you wanted to use them as your software to manage tenants.
Seth: For sure. And then we get three bonuses in this, which I actually thought are really cool and a lot of value is tied up in these. First one is an interview with Ben Leybovich about using your house as sort of a short-term rental, kind of like the Airbnb approach.
So, it’s a little bit different than what Jaren is doing, but it's just another way to use your house to make money and supplement some or all of your housing payment. And we've also got one with Lucas Hall, because he talks about leveraging the power of having roommates like renting out rooms to people. So, you don't necessarily have to have an accessory building or a whole separate unit, but just if you got a bedroom, you can make money from that. And then the last interview was with Scott Trench of BiggerPockets. What did you guys talk about?
Jaren: So, we just talk about what his experience was with house hacking. I think he owns like a 4-unit in Denver and he lives in one. At the time of the interview, at least he had been living there for several years and I was picking his brain about it. That was actually at the time when I was still in Chicago and where all of this kind of started.
I was really trying to figure out how to cut costs. And I had an epiphany where I realized my biggest monthly expense was rent. And I was like, “Huh, I can eliminate that or drastically reduced that then all of a sudden, it's going to be like, I've leveled up in my life. I've almost given myself a raise.”
I had a lot of hesitation around similar to what you brought up about sharing a roof with tenants. Like what if I lease out to a psychopath or something? And with Scott Trench, that interview was kind of a turning point for me. I was like, “Oh, okay. It's not irrational. It’s something that you need to be aware of, but more often than not, it's going to be just like if you were to rent an apartment somewhere. You just have neighbors and it's not that big of a deal."
Seth: Yeah, totally. Scott and Lucas and Ben, each of those guys they're experts in this stuff and have a ton of knowledge. I know Scott has a whole book about it. Ben, I think he's got a book too. I don't think Lucas has a book, but he's been doing this for a long time. So, a lot of additional supplemental knowledge, if you wanted to go kind of down on a different path in terms of house hacking.
It's been one of the latest big efforts we've made at REtipster. You check it out at househackinguniversity.com and that'll be out there for anybody who's interested in that. But anything else we should cover before we wrap this up?
Jaren: I hope for our audience out there for people who need this, I wish that this resource existed for me when I first got started in real estate and when I first started exploring this stuff because it would've saved me a lot of time and trouble. So, I really hope that this serves you well. We worked really, really hard on it. Lots of late nights, lots of sleepless nights, editing videos and putting it together.
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