Over the last 3 years, I’ve lived in my house and rented it out the spare bedrooms to roommates. In this time, I’ve made $42,825 in income on the side of my day job.
When I bought my house in July 2015, little did I know house hacking would change my life. Now, 36 months later, I have a solid equity position in my house, have paid down my consumer debt, and have a very strong financial base for the future.
While my success is worth celebrating, if all I did was pat myself on the back, this wouldn’t be an interesting article.
Why did I house hack? How was I successful? What tips and tricks can you apply in your life?
In this post, I’m going to share with you the details of my $42,000 side hustle, when house hacking makes sense for you, and how house hacking changed my life.
How I Started House Hacking: A Perfect Storm of Events
I’ve talked about the full purchase story a few times on this blog, but I’ll touch on it here again.
The week before my 23rd birthday, I was hanging out with my friends in the house I was renting at the time. We were interested in moving over to the nicer part of town, but our 4 bedroom house or apartment search wasn’t going as well as we had hoped.
I had just graduated from my Master’s program, had about $8,000 in student loan debt, but had a $63,000 salary.
“I’m curious… I wonder what I could buy. Let me look at mortgages tomorrow and see what I can get”, I told my roommate.
He sat there a little bit stunned, but said, “Okay, sure, whatever you think can work.”
Something I’ve learned about myself over the last 5-7 years is I get stuff DONE.
The next day, I was pre-approved for $300,000 in mortgage funding, and was already on the phone with a real estate agent.
4 days later, I was looking at houses, and on the 5th day, I had an offer accepted for just under $300,000.
I came home that Saturday and told my roommates I had bought a house and if they were open to it, they would be more than welcome to come live with me.
At first, they were a little skeptical. “Erik, I bet you bought some sh** hole and I’ll have to see it before I want to move in.”
I said, “You wait and see. You’ll love it.”
They loved it, and I was ringing the cash register for $1,650 a month that first year.
How I Got Lucky with My House
When writing about personal finance and financial freedom, many people don’t talk about the environment they live in which allowed them to be successful.
What do I mean?
Something that is incredibly prevalent in the personal finance blogosphere is how everyone is a millionaire and super smart for investing in the stock market over the last 10 years.
Here’s the thing: everyone looks smart in a bull market.
Why do I bring this up?
I was very lucky in getting my house. What I mean by lucky, is a perfect storm of events had to occur for this to happen.
These events were the following:
- Interest rates were low, and I could afford a sizable mortgage.
- My salary at the time was $63,000. When I was doing a job search, I had an offer at $55,000 as well, but instead took the higher salary. If I’d taken the other job, I wouldn’t have been able to afford the house.
- The Minneapolis housing market was tight, but not on fire.
- In 2015, things were still turning up in the Minneapolis market. This property was on the market for 10 days before I put my offer in. My offer was less than asking and it stuck. If this property went on the market today (which I’m thinking about), it would be gone in less than a week.
- I had enough in savings, and also was able to get a small loan from my dad
- With $7,000 in cash, and a $3,000 loan (not gift, I paid him back) from my dad, I was able to meet the FHA down payment requirement.
- But even with enough savings, it was very risky for me to put only 3% down on a house.
- For the past 3 years before looking for property, I’d learned about real estate, investing, and had a goal of building wealth.
- This can’t be ignored as many people at age 22 are still in school and have massive loans 🙁
Combining all of these things led to a successful purchase. If the year was 2016, I don’t think I could have gotten this done because the market was getting hot. In 2014, I didn’t have a solid salary.
Again, I don’t want to poo-poo my success. However, to say that it was all me and not recognize the economic scenario I was acting in would be a failure to think big picture.
Letters Work in Real Estate
Something that I’ve learned now is that letters work incredibly well in real estate. I’m 2 for 2 getting my offer accepted because I’ve written letters both times.
At the end of the day, people own houses, and with people, there are emotions involved. It’s not all about the numbers.
Here was my letter for my current house:
Dear Current Homeowner,
My name is Erik and I particularly fell in love with the back porch and the kitchen that you have
put in. I can imagine having fun sipping drinks in the backyard with friends and then coming in to
socialize around the kitchen island. I hope that I have the opportunity to partake in these activities going
Currently, I work at a bank in risk management and believe in investing and growing for the
future. Currently, I have 3 other roommates and plan to rent the place to them while living with them.
After a few years, I would consider to have this become a rental property for myself. This property has a
lot of potential as I am sure you know: I researched that you have been renting it out for almost 10+
years now. The proximity to downtown, uptown, and the lakes makes it a fine location.
To further prove my commitment, I am offering 280,000, a strong purchase price, and 1,500 as my
earnest money deposit. Additionally, financing should go smoothly, as FHA loans are government
backed. If possible, I would gladly appreciate help with 1-2k of a down payment in exchange for a higher
purchasing price. If not, I am confident that my down payment will suffice.
If you accept my offer, I promise to show your home the same love and respect the previous tenants
have. Thank you again for considering my offer. I, Erik, respectfully look forward to hearing your
You might think it’s over the top, but all of that was what I loved about the property. What’s awesome is that after 3 years of living here, I’ve had some great moments in the backyard and in the kitchen.
Letters work when buying a property. Keep that in mind if you don’t have the strongest financial position.
My $42,000 Side Hustle
Let’s get to the numbers now since this is a financial blog 🙂
Over the last 36 months, I’ve made over $42,000 (and yes, I’ve paid taxes on this 😛 )
$42,825 and this has been mostly passive. Yes, I have had to fix a sink at 6 AM, deal with a leaky pipe during the Super Bowl in 2017, and clean when my guy roommates were messy.
Overall though, this money has been passive and one of the best financial decisions I’ve made.
House hacking has changed my life with this amazing income coming in each month.
With this money, I paid off my student loan, I bought a 2014 Jetta for $13,000 and paid off the auto loan associated with it, have paid down my mortgage about $30,000 from where it originally was, and have maxed my Roth IRA for 3 years.
This has been my most successful side hustle and has allowed me to take risks at work and now with my business and other side hustle endeavors.
I’m very thankful I’ve been able to do this, but not sure it’s sense for everyone.
For more details on the financial performance of my house hacking, see my article on house hacking from last summer.
My Recommendation for You to Change Your Life with House Hacking
First, thank you for reading this article and learning more about a lucrative side hustle.
Sitting here today in August 2018, I’m not sure if I’d recommend house hacking to everyone. While I do believe it’s an AMAZING way to build wealth for the future, for many people, it’s probably out of the question to try and make happen.
For one, with real estate prices soaring and wages stagnant, it’s tough to buy a house in this market. Second, many people have kids or want to live alone. Buying a duplex might make sense, but there’s a cost as well which is not necessarily financial: your space is more confined.
For you, and this is something I recommend anyone do in any situation, it’s important to think critically and decide if house hacking makes sense.
Honestly, I want to sell my house and get downsize now that I’m just living with my girlfriend. This thought is part rational and part emotional. I think we are in a huge bubble because of low interest rates, but also, I want to downsize so I can take more risk in my side hustles by potentially leaving my job.
Would I try to house hack today? Probably not. If I was 22 again (oh to be 22 again), I’d probably try to do it, but again, it’s a different scenario and naively thinking things will magically turn out is a little short sighted. I took a lot of risk (low down payment and no real estate experience) and it paid off. I’ve had real estate friends on both sides of success spectrum (success and failure), and every situation.
Sitting here, August 2018, house hacking changed my life. I’m just a normal, average individual living in the Midwest. What can you do with house hacking?
Readers: have you house hacked? What has been your experience? If you don’t own a house, do you want to buy one?
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