house hacking results

Financial Results from 4 Years of House Hacking (from Purchase to Sale)

Erik Financial Education, Real Estate 10 Comments

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From 2015 to 2019, I hacked my housing expenses by renting out multiple rooms to friends in my house.

House hacking is a great way to reduce your housing expenses, and also a great way to gain experience as a landlord.

Over the past 4 years, I’ve learned a ton and improved my financial situation greatly. For anyone in the early stages of building wealth, house hacking is definitely something to consider.

In this post, I want to share with you the financial results of my house hacking, talk about how expensive houses are, and give you some inspiration to consider house hacking.

Why I Decided to Sell vs. Rent My House

Before I get into the financial results of my house hacking, I want to talk about why I sold my house vs. wanting to potentially rent out my house.

I bought this property in 2015 for $287,900. Previously, it was a rental property and was renting for ~$1,900.

In 2018, I started having thoughts that I didn’t need as much space and wanted to downsize.

While the property was amazing, and definitely had potential to become a rental property again, I started to run the numbers and I wasn’t so sure it made since for my financial goals.

When I started looking at comparable houses in my neighborhood in 2018, I looked at my house and thought I could list it for sale somewhere in the $350,000 to $400,000 range.

At the time, my mortgage balance was sitting around $250,000, and with this sale price, I could get out a significant amount of equity from the property.

In terms of it being a rental, I think I could have rented it out for ~$2,200-$2,400 a month, and with a mortgage of $1,835 a month, I would be cash flow positive.

$400 a month is $4,800 a year in cash flow, and while this seems decent, when looking at the potential of what kind of cash I could get out, this didn’t seem like an no-brainer use of the capital.

Also, even though the location and house is amazing, there were upcoming repairs and challenges with the house. It was built in 1900 and needed some updates.

My decision came down to if I could get $50,000 to $100,000 out of the property via a sale, then I could potentially buy multiple rental properties, start a business, invest in stocks, etc. With these proceeds, I could potentially make more than $4,800 a year in cash flow – and not have to worry about property management of this property.

This lead me to wanting to sell vs. renting it out.

Financial Results from 4 Years of House Hacking (from Purchase to Sale)

Below I’ve created a table with all of the housing related income and expenses I had over the last 4 years.

financial results house hacking

On the right, these are the sum of the sections, and to calculate profit, I’ve subtracted $44,000 (principal payoff) + $103,000 (housing expenses) from $158,000 (proceeds + rental income).

As mentioned above, In 2015, I bought the house for $287,900, and using FHA, I put down 3.5% (and it ended up being more like 2% due to some fees).

With mortgage closing costs included, I started off on my house hacking journey with ~$10,400 into the property.

After moving in, I had 3 roommates join me. My initial mortgage payment was $1,820, and my monthly rental income was $1,650.

Increasing my income is a goal of mine, and with house hacking, I was able to accomplish this.

Over the next few years, friends and roommates moved in and out of the property, and also had a few housing improvements and repairs.

With all of this income and expense, I’ve looked to categorize it appropriately above.

Fast forward to July 2019, I decided to sell my house, and was able to sell for $375,000.

My mortgage balance when I sold was ~$245,000, and after agent commission and other fees, I walked away with roughly $110,000.

Tallying all of this up, over the 4 years of house hacking, I “made” just over $11,000 to live.

But I’ve left out where the cool part of house hacking comes in.

House Hacking vs. Renting – An Opportunity Cost Analysis

In the calculation above, I included the principal payoff as an expense. When you pay down the principal, yes, technically it is going back to you, but it’s not unlocked until you sell.

Since I’ve included the principal payoff as an expense, I need to make an adjustment to the final profit number.

I haven’t considered the opportunity cost of renting a place.ย 

If I was to rent out the room I lived in for 4 years to myself, I would have charged $800 a month. Adding in $800 a month for 4 years, I actually “made” nearly $50,000 toย live.

$50,000 over 4 years, or $12,500 a year to live.

As mentioned above, when I got my house, I paid $10,400 upfront (down payment and closing costs).

Looking at the final profit number, I made $12,500 a year for 4 years – a return on investment of 120.19% a year for 4 years.

Those are some ABSURD returns.

These kind of asymmetric pay-offs are what you need if you want to build wealth fast without having a lot of money.

Real estate has this type of potential, but there are also some other thoughts I want to reflect on and share with regards to real estate and house hacking.

Houses are Expensive and The Potential for Real Estate Gone Wrong

While I made out really well on with my house hacking experience, there are a number of things which could have gone wrong, or also lead to much lower returns.

For one, I didn’t have any major repairs or accidents with my house.

For example, I could have easily had to repair the roof, replace a water heater or furnace, or dealt with water damage in the basement.

These things would have potentially cost thousands of dollars and also lead to headache and stress.

In addition to these potential repairs and damages, house prices are NOT guaranteed to always go up.

We live in a world with finite resources and finite space. Real estate is very cyclical and dependent on location and demand.

I happened to buy at a great time and rode some nice appreciation (33% in 4 years).

However, this might not be the case for other people who buy in other areas or at other times.

Finally, property taxes is another factor I want to discuss.

Property taxes keep going up all over the United States. As you may have noticed above, from 2016 (the first full year of living in my house) to 2018 (the last full year), my property taxes increased $1,500!

In 2019, they were set to be $5,200 – an increase of $2,200 in 3 years!

In 3 more years, would they be $7,400 a year? I have no idea, but depending on the area you live, this could definitely play into lower returns.

Again, I was pretty lucky with my house hacking, and am thankful for my experience. What do you think?

What are Your Thoughts on House Hacking?

I’m done with house hacking for now, but still believe it’s an amazing way to reduce your housing expenses and improve your financial situation.

House hacking allows you to cover some of your mortgage and increase your monthly cash flow.

One thing I should say, though, is house hacking is not for everyone.

As a 20-something person without a spouse or kids, I was able to take this risk.

However, you may not have as flexible of a situation as I did, and I want you to think critically before jumping into real estate.

There’s no guarantee that house hacking will work for you, but there is certainly great potential!

Thank you for reading ๐Ÿ™‚

House hacking results
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Comments 10

  1. You make me want to do this analysis with my house too. We arenโ€™t interested in selling, but if we did, we would walk away with a ridiculous amount of cash, all things considered. When real estate is good, it can be really good. Even when you do have to replace things like furnaces and water heaters (I keep meaning to write a post about how those replacements had a seriously good ROI themselves thanks to utility rebates etc).

    1. Post
      Author

      Thanks for the comment Angela!

      It’s crazy how real estate can be really good – or really bad! What I also think was interesting was all of the expenses. It cost $25,000 a year to live in my house! This isn’t a lot when compared to what it could be, but also it’s a heck of a lot more than paying $500 a month as I was in college haha.

      I’d love to read your article and see what thoughts you conclude with ๐Ÿ™‚

  2. Congrats on the sale! I like your explanation on why you decided to sell vs continue renting. Totally makes sense.

    Iโ€™m going to be facing a similar situation in about 3 years. My initial thought was to keep renting but that will depend on monthly cash flow and other investment options at the time.

    What do you think was the highest ROI (home improvement upgrade) you made on your home? New windows?

    1. Post
      Author

      Thanks Gary! It’s always interesting to make decisions – especially high stakes ones like these!

      I definitely think the windows had the biggest effect for quality of life, and with the house being built in the 1900s, the older windows would definitely not have been suitable for the price (you never know, but they definitely helped).

      The grading (rock landscaping) and concrete around the house were both nice and added to the curb appeal, but for winter and summer, the windows were great ๐Ÿ™‚

      Thanks Gary – looking forward to hearing more about your house hacking.

  3. If thereโ€™s one thing I would have done different on my personal finance journey it would have been house hacking. This is one of the best ways to supercharge the path to FI. Thanks for sharing your results over the past several years! Really interesting.

    1. Post
      Author

      Thank you for the comment FP ๐Ÿ™‚ It’s crazy the potential… Combining house hacking with other rentals, or house hacking with increasing income at work can certainly get the money machine going.

  4. Hi Erik,

    Congrats on a successful house hack!. I’m curious to find out how you will make out with your income taxes. We were lucky to get into our rentals at the low point of the 2008 financial debacle. Fast forward 10 years later, and i’m thinking of doing a 1031 exchange to a property outside California. The reason being you get better cash flow rates outside my state.

    Carlos

    1. Post
      Author

      Hey Carlos! Thanks for the comment.

      I think income tax wise I should be okay with capital gains since I lived there all 4 years. Regarding depreciation, I’ll probably have to pay some back.

      I think all in all it will be good though ๐Ÿ™‚

      That sounds very exciting for you, and probably a good deal to get out of California since property values have done so well!

      Erik

  5. Looking at your property, its interesting most of the returns came from market appreciation. In an appreciating market like Minneapolis the more leverage the better the returns. You had almost maximum leverage on the property when you purchased it. How do you think your decision to sell was influenced by how little you had put as a down payment?

    I think it would be interesting in a few years to see what kind of returns you get from the proceeds of this sale!

    Last question — Do you know what the future buyers plan to do with the property? Will it be a rental again?

    1. Post
      Author

      I didn’t think about the down payment at all when I went to sell… not sure if it would’ve changed my decision since over the last 4 years, I had paid down the mortgage an additional ~$35k from prepay and from regular amortization.

      The buyer was a couple and they are planning to live in it. Not sure if it will be a rental again ๐Ÿ™‚

      Thanks Clem – looking forward to chatting soon!

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