building wealth through real estate

My $42,000 Side Hustle – How House Hacking Changed My Life

Erik Financial Education, Real Estate, Side Hustles, Thoughts of a Mastermind 16 Comments

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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.Β 

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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 πŸ™

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.Β 

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
forward.

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
response.

Sincerely,
Erik

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 πŸ™‚

Over the last 36 months, I’ve made over $42,000 (and yes, I’ve paid taxes on this πŸ˜› )

house hacking rental income

$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.Β 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?

Erik

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Comments 16

  1. Thanks for sharing your honest opinion, Erik! I didn’t know you were thinking about selling your house and downsize.

    Can you rent out both of the rooms you and your girlfriend are living in to help increase the cash flow, save, and then buy a 1br or 2br condo when the timing is right?

    When you start a family and have kids, you might change your mind again and want more space. We’re about to welcome our second child and would not want to downsize to a 1 br.

    Best of luck with whatever decision you end up making! πŸ™‚

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      Author

      Thanks Ms. FAF for stopping by and the comment πŸ™‚

      We could certainly rent out my house or some of the spare bedrooms. But we like our space. Also, I don’t really want a condo. I’m looking for some land + a smaller house in a rural area vs. staying in the city. We will see. I’m not sure yet!

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      Author
  2. I’m house hacking right now, and loving it. My spouse and I (DINK) bought a duplex two years ago and live in one of the units. We also Airbnb our spare room in our unit. How did you go about calculating your financials, or return on investment? I have all the data (i.e. We grossed $14000 CAD in income last year from living here) but am struggling to calculate an ROI in a traditional sense (ie. Cash on cash return, etc.). Thanks for all your hard work!

    1. Post
      Author

      Thanks Cass for stopping by and the comment!

      That’s a great story and thank you for sharing.

      For return on investment, I’m not really sure either! I don’t take that analytical of an approach at growing my wealth – so I don’t have a good answer for you. I agree, with house hacking, it’s tough to calculate something in the traditional sense!

      Erik

  3. You said, “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.”

    You’re spot-on that you exploited a great opportunity that depended upon various external factors aligning. And you’re right that had the environment been different this opportunity would not have been possible. Now, I’m wondering if a sufficiently clever capitalist could take all the opposite environmental factors, and find a completely different way to turn a buck.

    I think so, because when you have your eyes open you’ll see opportunities when they’d just pass you by b/c your thinking is in a different mode. So much of this is mental.

  4. I’ve been inspired by bloggers like yourself and am excited to say that I just bought my first house on Monday and plan to house hack it! It’s a 3 bed/2.5 bath and I already have a friend who is planning to move in with me and should be able to easily add another roommate if I decide too. I’m so excited for this new chapter in my life! Thanks for putting good info out into the world!

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      Author

      Wow Becca that’s awesome! Congrats on the first house and I’m very excited to see what you can do with it πŸ™‚

      You are welcome and thank you for stopping by!

  5. I love this article and story. You made this simple for anyone to understand or execute. I have wanted to get into owning rental properties for some time and this makes it seem less intimidating. Can’t wait to continue to follow your journey.

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      Author

      Thanks for the comment and glad you loved the article πŸ™‚

      It’s interesting because I still think owning a house I’m not living in would definitely be a little scary πŸ˜‰

      Have a good one

  6. I appreciate that you actually acknowledged luck in the profit. I bought a townhouse in a vacation town at the right time with the right interest rate (2013, Myrtle Beach). After a few years, I can see how lucky I was.

    Your profit could be viewed as higher than 42,000 grand when appreciation is considered. Roommates made you more comfortable with a the 300,000 mortgage. On your own, you might have gone with a less expensive house. The appreciation on the the more valuable property is probably larger than appreciation on a cheaper one.

    There are also economic advantages to putting the real estate business in your taxes.

    1. Post
      Author

      Oh yeah definitely… my RedFin estimate is $85,000 higher than when I bought… which is absurd!

      And yes you definitely are correct again with the tax piece. Even though this $42,000 was income, I was able to offset almost all of it with repairs, interest, and depreciation πŸ™‚

      Thanks for stopping by and sharing!

  7. Great story. If I had to do it all over again house hacking would definitely be part of my game plan. I used to live in a duplex with 3 other guys in my early to mid 20s and if I didn’t blow all of my money on foolish things I could have owned the place (or something similar) and rented it out. House hacking is one of the best ways to get a head start early in life.

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      Author

      Thanks for stopping by FP and thank you for your kind words. It really did help me get going with a great win earlier in my financial career!

  8. Real estate investment is. It for everyone. Sometimes, things will go smoothly when you landed a decent tenant. Other times, it can be very stressful when you have tenant issues.

    I currently own a rental property with my friend and we run it like a business together. Our working relationship is great and we went through everything together. I would recommend anyone investing in real estate with a partner that they can trust and get along well. You can share both the risks and rewards.

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