Real Estate Investing Basics

House Hacking 101: How to “Hack” Your Housing (and Get Paid to Live for Free!)

Expertise: Landlording & Rental Properties, Personal Development, Real Estate News & Commentary, Real Estate Investing Basics, Business Management, Flipping Houses, Mortgages & Creative Financing, Real Estate Deal Analysis & Advice, Real Estate Wholesaling, Personal Finance, Real Estate Marketing, AskBP
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The internet is full of “hacking tips.” I’m sure you’ve seen them, with clever tricks like storing your pancake mix in old ketchup bottles or dipping your Oreos with a fork through the frosting. Sure, those are fun little tricks – but how much do they really improve your life?

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Today I want to share a “life hack” that, when properly implemented, can have a dramatic effect on your wallet and the financial destiny of your family. This is much more than simple tricks or ideas to shave five minutes off your work day.

This is epic, life changing stuff.

I’m talking about hacking your housing and living for free. I’m talking about building wealth automatically and getting paid to do it. I’m talking about buying an owner-occupied multifamily property and getting paid to live for free.

Wait, what?

You heard me – it’s often called an “owner-occupied multifamily property” but you probably have heard other names for it, like “duplex,” “triplex,” or “4-plex.” Yes, I’m talking about the properties that have more than one unit but don’t quite fit the “apartment complex” category. There is a good chance you’ve even rented a unit in one of these places in the past or you know someone who has. They exist in every market, every neighborhood, and every price point – and by purchasing a small multifamily property, living in one unit, and renting the other units out – you can live for free and get paid to do so.

Let’s get started.

Are You Ready to Buy a Home?

When I bought my first house, I took a hammer and put a giant hole in a wall – just because I could.

You see, buying my home was exciting because it was mine.  I could do what I wanted, when I wanted to – and no landlord was going to tell me “no.” For me, owning a home is one of the greatest feelings there is.

However, buying a home is not for everyone.

If you are flat broke, up to your eyelids in debt, switching jobs every 2.5 weeks, and can’t seem to avoid calling those late-night informercials for crap you can’t afford… maybe it’s best to get your life and budget in order first. Buying a home is not a light-hearted, flippant decision.

However, I also don’t believe buying a house needs to be a task only for old, boring people. If you have decent credit, a stable job, and a small amount of savings – you can enter the world of the homeowner.  Even more so – if you are smart about it, you can enter the world of the real estate investor at the same time and start hacking your living expenses.

Why Purchase a Small Multifamily?

By purchasing a great small multifamily deal, the rent that your tenants pay each month can cover all of the expenses for the property – and more. For example, if you buy a 4-plex, live in one unit, and rent each of the other units out for $500 a month, you could be making $1500 per month in income. If your loan, taxes, insurance, utilities, and other expenses come to just $1200 – you could get paid $300 a month just to live in the home. Even better- when it comes time to move out into your future home, you can rent that 4th unit out for even more income.

However, I’m getting ahead of myself a bit.  Let me explain first how to buy a small multifamily property.

Where to Find Small Multifamily Properties

Trust me – these properties are everywhere.

The easiest way to find them is by speaking with a real estate agent. Ask your family and friends for recommendations and start up a conversation. The best part about working with agents is that it’s totally free for you! The seller of the property typically pays for the agent, which means you can ask a thousand questions and get a thousand answers without needing to pull out your debit card.

Use this!

Keep in mind, however, that you are only looking for properties that have 2, 3, or 4 units. Once you hit 5 units or more, the entire world of real estate changes into something you don’t want to mess with (commercial real estate.) So for now, focus on the duplexes, triplexes, and 4-plexes.

If you want to just start looking, you can also use sites like Realtor.com, Zillow.com, or Trulia.com to start looking at properties. With each of these sites, you have the ability to limit your searches to only multifamily properties.  Start looking at the cheapest properties in your area and try to find neighborhoods that you would want to live in.

Don’t be scared of homes that are a little “ugly” or have been foreclosed on. Although they may require a few weekends of painting with your buddies – you can often get substantial discounts because everyone else is scared away.  In fact, my favorite feature in any property I am considering is the smell. The worse, the better.  Why? Because smell is the easiest and cheapest thing to fix (usually just by installing new carpet and re-painting) but drives 99% of home buyers from even considering the deal.

What Makes it a Killer Deal

If there is only one lesson you learn from this post – it’s this:

Find a killer deal. 

You see, if you are trying to “hack” your housing, not just any deal will work. In fact, I’d wager that 90% of the small multifamily properties out there are not going to give you the results you are looking for… which is cash flow.

Cash flow is the extra income left in your bank account each month after all the bills have been paid. If you can get your rental units to pay all the expenses and there is money left over – that money is yours. The trick, therefore, is finding properties that provide this cash flow.

The best trick I know for quickly estimating if a property is going to provide cash flow or not is known as the 50% rule of thumb.  Essentially, this rule of thumb goes like this:

Take the total income of a property and divide it in half. Those are your expenses. Now take out your loan payment. The remaining money is your estimated cash flow.

Let’s do a real life example of this:

You find a 4-plex for sale for $200,000, where each unit would rent out for $800 per month. If you rented three of the units out, the total income would be $2400 per month. Divide that in half and you are left with $1200 per month to pay the mortgage. A loan on $150,000 (Cause you don't pay full price, and then you put down something for a down payment), at 4% for 30 years is about $700 per month, which means you could get paid $500 per month to live for free. This would be a killer deal.

Keep in mind, however, this rule is just a rule of thumb – so make sure you use this as a quick and dirty way to filter lots of properties, and when you find some great potential properties,  look at all the expenses for the property and figure out what all the costs truly are. To learn more about the analyzing properties using the 50% rule, check out this post and YouTube clip.

How to Fund Your Property Purchase

Maybe you have lots of cash and can simply write a check for a home. In that case – awesome!

However, chances are – you are probably not able to pay the hundreds of thousands of dollars needed and are going to need to get a loan (mortgage) from a bank. With any loan, you are going to need to supply a certain amount of money to get the loan, known as the down payment. While the "no down payments" mortgages have mostly gone by the wayside, there are still options for purchasing properties with low down payments, ranging from 3.5% down payments for FHA loans (offered at most banks) to 20% down for conventional mortgages. There are even loan programs (like the 203K loan) that allow you to include needed repair costs into the loan, so you can come to the table with even less cash.

The best way to determine what the best loan is for your deal – speak with a qualified mortgage professional at your local bank or credit union. Just like with real estate agents, these mortgage pros are free to use and talk with (they get paid from fees from the loan – you should never need to pay upfront) so don't be afraid to pick up the phone and start fielding your options.

Managing the Property Without Going Insane

After closing on the purchase of your small multifamily property, you are now a landlord! At this point, it is imperative to learn how to be a landlord – and start running your business like a business – not a hobby. Read a few books on being a good landlord, make friends with local investors that you respect, read blogs that talk about landlording, and don’t stop learning.

Being a landlord is not as difficult as the horror stories you may have heard of – if you follow some very simple guidelines:

  • Screen your tenants like you would a job applicant. Keep your emotions out of it and look at the facts. For an exhaustive guide on the best way to find awesome tenants, check out The Ultimate Guide to Tenant Screening.
  • Have a written policy to refer to. Stick to your policy when dealing with tenants.
  • Outsource things you don’t want to do. If you don’t want to fix toilets – don’t fix toilets. Find handymen, property managers, or others who can handle the aspects of the job you don’t want to do. If you found a great deal when you bought your property (which you should have!) the cash flow can pay for these things.
  • Never rent to family or friends. Trust me – it never ends well.
  • Treat your business like a business, not a hobby. Set up processes and systems to handle the problems that will arise.

Being a landlord is not always the most fun activity, but by following these simple guidelines the process can be much easier and your problems minimized.  There are over twenty million landlords in America, so you are not alone in your journey. If you run into any problems, just ask those who have come before for help and you’ll find most seasoned landlords are more than willing to help.

What Next?

I truly believe that purchasing a small multifamily property can change your life, free up your finances, and start you down a path toward building wealth through one of the most powerful channels there is: real estate. This article is the start of a conversation, and I hope you continue this conversation after reading.

Feel free to leave any questions or comments in the comment section below and let’s chat!

Brandon Turner is an active real estate investor, entrepreneur, writer, and co-host of the BiggerPockets Podcast. He began buying rental properties and flipping houses at age 21, discovering he didn’t need to work 40 years at a corporate job to have “the good life.” Today, with nearly 100 rental units and dozens of rehabs under his belt, he continues to invest in real estate while also showing others the power, and impact, of financial freedom. His writings have been featured on Forbes.com, Entrepreneur.com, FoxNews.com, Money Magazine, and numerous other publications across the web and in print media. He is the author of The Book on Investing in Real Estate with No (and Low) Money Down, The Book on Rental Property Investing, and co-author of The Book on Managing Rental Properties, which he wrote alongside his wife, Heather, and How to Invest in Real Estate, which he wrote alongside Joshua Dorkin. A life-long adventurer, Brandon (along with Heather and daughter Rosie) splits his time between his home in Washington State and various destinations around the globe.

    Bobby
    Replied almost 6 years ago
    This is exactly what I am doing right now with my VA loan. If it works out, I get a free house (0% down) with 3 units rented. I get to save my money for other RE purchases (or major repairs). I found the strategy right here on BP!
    Bobby
    Replied almost 6 years ago
    This is exactly what I am doing right now with my VA loan. If it works out, I get a free house (0% down) with 3 units rented. I get to save my money for other RE purchases (or major repairs). I found the strategy right here on BP!
    Brandon Turner
    Replied almost 6 years ago
    Hey Bobby – nice! Best of luck on this, and be sure to let us know how it works out for you!
    Steven Craig schafer
    Replied 4 months ago
    Do you have to live in it for the loan you are talking about? My wife and I inherited a piece of land and were planning on putting at least three rentals on it. Does that require a different loan?
    Devin Campbell from Watertown, New York
    Replied over 2 years ago
    did this exact thing last year in may, and did this around Fort Drum NY. Had the other side of my duplex rented in 4 days after screening. It works GREAT!
    Bobby
    Replied almost 6 years ago
    This is exactly what I am doing right now with my VA loan. If it works out, I get a free house (0% down) with 3 units rented. I get to save my money for other RE purchases (or major repairs). I found the strategy right here on BP! Reply Report comment
    Karin DiMauro
    Replied almost 6 years ago
    Thanks, Brandon! You’ve got me thinking. Can you clarify a point in this paragraph: “You find a 4-plex for sale for $200,000, where each unit would rent out for $800 per month. If you rented three of the units out, the total income would be $2400 per year. Divide that in half and you are left with $1200 per month to pay the mortgage. A loan on $150,000, at 4% for 30 years is about $700 per month, which means you could get paid $500 per month to live for free. This would be a killer deal.” In this example, are you saying it’s listed for 200k, but you wind up purchasing it for 150k? (Whether by negotiating a lower purchase price or some combination or lower purchase price plus downpayment.) Thanks! Karin
    Brandon Turner
    Replied almost 6 years ago
    Hey Karin, I think I was thinking to offer $180k, put $30k or so down , but I didn’t really explain that, huh!? I’ll tweak the post above 🙂 Generally, I always assume getting a 10% discount or more any time I buy anything! Thanks for reading and commenting!
    John P. from Los Angeles, California
    Replied almost 2 years ago
    Im all about this concept but your example is way crazy. If each unit could rent for $800 a month the cap rate would be 19%!!!
    Sergio Aguinaga
    Replied about 1 year ago
    Hello John How did you come up with 19%? 3200/200,000 = 16%. Also, since it’s return on investment is through a mortgage, shouldn’t you calculate the cash-on-cash returns instead of the cap rate since you’re not paying cash for it.
    Daniel Hughes from Hereford, AZ
    Replied 5 months ago
    Hey John P. It’s not a 19% cap. Here’s why: Assuming 3 units rented, $800/unit, $180,000 purchase price: Gross Income = ($800 * 3) * 12 = $28,800 NOI (using 50% rule) = $28,800/2 = $14,400 Cap Rate = NOI / Purchase Price Cap Rate = $14,400 / $180,000 = 0.08 Cap Rate = 8.0% ** But that’s not the full story. Assuming you are going to move out of the property in the future, you’ll rent the 4th unit. So let’s calculate the true cap rate: Gross Income = ($800 * 4) * 12 = $38,400 NOI = $38,400 / 2 = $19,200 Cap Rate = $19,200 / $180,000 = 0.107 Cap Rate = 10.7% ** In the example, the investor used debt on the property, so cap rate isn’t as useful. You’ll want to calculate the Cash on Cash (CoC) return. Assuming 3 rented units (you live in 4th) at $800/mo, $180,000 purchase price: Loan Info Down Payment (16.7%): $30,000 Principal = $150,000 Interest Rate: 4% fixed Term: 30 years Debt Service: about $700/mo NOI = Gross Income / 2 = ($800 * 3) * 12 / 2 NOI = $14,400 CADS (Cash After Debt Service) = NOI – Debt Service CADS = $14,400 – ($700 * 12) CADS = $6,000 CoC = Cash After Debt Service (CADS) / Initial Investment No repairs in this case and ignoring closing costs and any extra loan fees for simplicity, so Initial Investment = Down Payment. CoC = $6,000 / $30,000 = 0.2 CoC = 20% (great!)
    Bernard Hall
    Replied almost 6 years ago
    Hey Karin. Brandon actually came up with the $150,000 dollar amount by subtracting $50,000 dollars from $200,000 dollars. The $50,000 dollars is the 25% down payment he paid when he closed on the property (since most mortgages require you to pay at least 20% down for your purchase). That left him with the $150,000 dollar amount that he would actually have borrowed from the bank. So, $150,000 dollars would be his mortgage amount. Hope that helps. – Bernard
    Karin DiMauro
    Replied almost 6 years ago
    Thanks, Brandon and Bernard, I figured it was something like that! And whoops on my own question – I meant to ask whether the amount being financed is actually 150k, not the purchase price (unless, of course, that IS what you wound up buying it for … which it isn’t … so never mind. haha). Anyway, thanks again!
    Karin DiMauro
    Replied almost 6 years ago
    Thanks, Brandon! You’ve got me thinking. Can you clarify a point in this paragraph: “You find a 4-plex for sale for $200,000, where each unit would rent out for $800 per month. If you rented three of the units out, the total income would be $2400 per year. Divide that in half and you are left with $1200 per month to pay the mortgage. A loan on $150,000, at 4% for 30 years is about $700 per month, which means you could get paid $500 per month to live for free. This would be a killer deal.” In this example, are you saying it’s listed for 200k, but you wind up purchasing it for 150k? (Whether by negotiating a lower purchase price or some combination or lower purchase price plus downpayment.) Thanks! Karin Reply Report comment
    Nancy
    Replied almost 6 years ago
    I live in one side of a duplex that I own and there are definitely great benefits. Unfortunately, I bought it in 2005 when the market was peaking, however, it is still paying off. I get additional benefits as opposed to owning a single family home such as write offs for 1/2 the power washing done annually, landscaping and maintenance, the lawn tractor I purchased, gutter cleaning, and the list goes on and on.
    Brandon Turner
    Replied almost 6 years ago
    Hey Nancy, yeah buying in the peak isn’t fun, but at least the mortgage is dropping each month and prices are on the rise again! And yeah, there are a number of other good benefits too – thanks for sharing!
    Brandon Turner
    Replied almost 6 years ago
    Hey Nancy, yeah buying in the peak isn’t fun, but at least the mortgage is dropping each month and prices are on the rise again! And yeah, there are a number of other good benefits too – thanks for sharing! Reply Report comment
    Brandon Turner
    Replied almost 6 years ago
    Hey Nancy, yeah buying in the peak isn’t fun, but at least the mortgage is dropping each month and prices are on the rise again! And yeah, there are a number of other good benefits too – thanks for sharing!
    issac
    Replied over 2 years ago
    Hi Brandon, Love your blog great information for someone who has no idea where to start. If you know the benefits that come along with owning a multifamly home, I would definitely be interested in learning more. I in the process of looking for a home, but after reading this I am thinking of buying a multifamily home. I just wanna know the pro’s and cons before hands. Like benefits of owning, tax breaks, stuff like that. Thank you for your time. Best Regards, Issac
    Joe Kato
    Replied almost 6 years ago
    I used this strategy last year and it is working well for me! Last year I bought a 3 family that came with tenants on 1st and 2nd floors. Got a 80% loan at primary-residence interest rates and remodeled the 3rd floor for the wife and I to live in. Took 4 weeks to remodel with some additional help and been living here a year now. House was $250K, rents $850 and $850 from floors 1 and 2. Mortgage on $210K is $1500 with tax, insurance, water, and sewer. So I get paid $200/month to live here. And mowing the lawn and a little upkeep is just like any homeowner would do. When its time to find a new primary residence (hopefully another multi), then cashflow goes up to ~$1000/mo
    Brandon Turner
    Replied almost 6 years ago
    Hey Joe, nice! I love hearing that this is working for people! And when you move out, this will pay a good portion of your new house payment, so you’ll be able to continue to live almost for free! This is why I love this strategy!
    Rob B. from Cambridge, Massachusetts
    Replied over 3 years ago
    I know this comment is super old – but doesn’t this fail the 50% rule? Half your rent income is 850, minus the ~1000 for the mortgage puts you negative. Is the 50% rule intended to help guide you to deals that will get you a higher return? I guess I don’t understand how 50% of total rent is a good proxy for the additional costs beyond the mortgage.
    Roberto
    Replied over 3 years ago
    850 times 2. It’s a 3 family housing unit not 2 as you may be assuming. So 2 times 850 =1700. Then 1700 minus his mortgage of 1500 (1700-1500=200) leaves him with 200 extra. Then if he were to move out and rent out his current unit it will be the 850 times 2,550 leaving him with a net profit of 1,050. Basically enough to buy another home and live for “free”.
    Daniel Hughes from Hereford, AZ
    Replied 5 months ago
    Hey Roberto, you’re not using the 50% rule in your numbers. The 50% rule states that half of your gross income will likely be used on expenses. It’s a quick estimate of what your Net Operating Income (NOI) will be. In this case, Joe Kato said he was renting floor 1 and 2 for $850 each. Gross Income = $850 + $850 = $1,700/mo NOI (using 50% rule) = $1,700 / 2 = $850 Joe Kato said his mortgage payment is $1,500. Cash Flow = $850 – $1,500 Cash Flow = -$650 So yes, as Rob Boyle said, this would fail the 50% rule (when calculating for live-in). But in this case, Joe Kato will be living in the property, removing the income from the third unit. Usually it’s okay to be cash flow negative when living in a house-hack, as long as the amount you have to pay is lower than what rent would be in the area. In this case, Joe Kato would be paying $650 for “rent” but by doing so it would be building equity instead of disappearing. To see if it’s actually a good investment or not, let’s try it as if Joe Kato is not living in the property to get a more accurate picture: Gross Income = $850 * 3 = $2,550 NOI = $2,550 / 2 = $1,275 Cash Flow = $1,275 – $1,500 Cash Flow = -$225 This deal would not pass the 50% rule test. Though Joe Kato said he was getting $200/mo in cash flow, I don’t see that he factored in important expenses like Repairs & Maintenance, CapEx, Vacancy, or Property Management. As such, this $200/mo number is not actually cash flow because if he makes $2,400/yr ($200 * 12) in cash flow, but then has to cover a repair of $2,400 or greater, then he either didn’t make money or he lost money that year. Same goes for if he has a vacancy in a unit for 4 months out of the year (or 2 months for each, etc). This is why it’s so important to make sure you factor in all your expenses. The 50% rule helps you quickly screen deals since, on average, 50% of an investment property’s gross income will go to expenses (% goes up for older buildings and down for newer buildings as a result of capex and maintenance). After you get a property under contract and are in your due diligence period, you can then verify all the expenses to get an accurate picture of your cash flow. The 50% rule is just a preliminary test to quickly filter out the bad leads from the rest.
    Vista Cendhani from san antonio, TX
    Replied over 1 year ago
    I was wondering if we need to rehab the units with tenants already in it. And if they need a lot of work, how to make sure the cash flow is enough to cover this. (do we budget this in the loan, even if the reno happen after the first tenant move out–> dunno if its possible).
    Troy
    Replied almost 6 years ago
    As an OO of a 4plex, it’s fantastic! Mostly. The tenants know I own the place. That’s got me down. And it could be part of it was that there was little to now screening going on when I filled the place. (Learning from the school of hard knocks!) I have the fear every time I have to post a 5-day my car is going to vandalized, bricks through the window, and heaven forbid if I actually have to evict someone! Ooof. I’ve got a Property Mgmt Company that manages my properties, this one included. So my tenants feel like it’s okay to come to me and tell me about their problems with the units and asking me to take care of it. So I’d say be wary of the way you deal with the people that you rent to if you go this route. Because not only are they your renters, but they are also your neighbors.
    Nancy
    Replied almost 6 years ago
    You make a good point. With the duplex I reside in, my “school of hard knocks” was getting to know and befriending the very first tenant. Without all the detail, I might have well have rented to a relative which we already know is a big no-no. So, for the last 3 tenants, I am just the landlord/neighbor who only says hello – AND THATS ALL! If they invite me to stop by because they’re having a barbeque, I politely tell them I’m busy. This has worked out great for the last three tenants. They just leave me the rent money each month and let me know if there are any problems, which are usually only minor repairs from time to time.
    Brandon Turner
    Replied almost 6 years ago
    Great lesson, Troy. It’s for this very reason I don’t tell the tenants I’m the guy in charge. I’d rather just be the maintenance guy. But what’s great is that you are able to learn this stuff on a small scale, with 4 units, and apply it to bigger investments later on! Thanks for commenting!
    Troy
    Replied almost 6 years ago
    Brandon, It tough to be the “maintenance guy” when: You live there. When Rents are coming to handed or mailed to you You are the one to unlock, lock-outs. Etc, etc. So you just need to screen really well, a fact that didn’t not become apparent until too late.
    Karin DiMauro
    Replied almost 6 years ago
    Hi Brandon – I have the same question as Troy has here. How do you handle the rent scenario? Even if they mailed them in and didn’t physically see you, what happens when someone is late and you have to deal with that situation? I understand you thoroughly screen tenants up front to minimize this, but sometimes things come up. Also, if you’re the maintenance guy, who’s the property manager (or whoever it is they deal with when applying, paying the rent, have a question or problem, etc)? Thanks!
    John Bryson Investor from Seattle, Washington
    Replied about 2 years ago
    Now days, you can: 1-Collect rent online–This way, the person paying rent has no idea that they’re paying you. 2-Hire either a VA(virtual assistant) to screen/speak with tenants over the phone, or a friend of yours to meet with them as your assistant or “Tenant Screening Manager” or some similar title. 3-Hire a friend to help with lock-outs. These are just a few ideas and of course I’m sure I didn’t think of everything, but you can get pretty creative. OBVIOUSLY, screening is the best way to avoid issues.
    Terry Pratt
    Replied almost 6 years ago
    These are available at every price point? That is doubtful, they appear to be well out of reach for low-wage workers in Portland.
    Brandon Turner
    Replied almost 6 years ago
    Hey Terry, I haven’t been everywhere, but yes – I do believe they exist in every market, somehow. I know of people in Portland, LA ,Boston, Seattle, etc who do this very strategy, successfully. Obviously, you may need to be less picky on location than a single family home – but I don’t advocate buying in the ghetto either. Hope that helps some!
    Sharon Tzib
    Replied almost 6 years ago
    Taking this one step further, Brandon, because the FHA only requires you to maintain the owner occupancy requirement on a continuous basis for at least one year after purchase, you could theoretically rinse and repeat this every year. In five years’ time, you could have 20 units, if you were purchasing 4-plexes each time. Also, another very helpful FHA feature is the 6% sellers assist, which means most buyers only need to bring 3.5% to the table (the down payment), and the seller can take care of the rest (the closing costs). For negative commenters who think this strategy is out of reach, keep in mind that if you could find a $100K 4-plex (these are common in Houston, for example), that would be a $3500 down payment (3.5%). That’s $9.59/day you would need to save over a year, or $4.79 over two years. I’m sure if a low wage employee gave up smoking, lattes, cable tv, or other nonsense American consumers consider necessary that are actually discretionary, this strategy would be very, very doable. It’s all about your priorities, and more than that, your attitude. Henry Ford once said, “Whether you think you can or can’t, you’re right.” Great post, Brandon!
    Lindsay Wilcox
    Replied almost 6 years ago
    Sharon, you can only have one FHA loan at a time, so unless you’re going to get to 20% equity and refinance in that first year, there’s a gaping hole in your strategy.
    Sharon Tzib
    Replied almost 6 years ago
    Yes, Lindsay, good point – maybe one year is a little bit aggressive for my example, but the strategy still works. After purchase, I would use all the cash flow and my rental savings towards extra mortgage pay down. I would keep at this, coupled with any market appreciation, property improvements, and possible value adds, until I had 10% equity, which could be doable in the first couple of years. As soon as I could, I would refi into a 80/10/10 using a private or commercial lender for the second and move on to the next property. There’s more than one way to skin a cat with this strategy, but even if it took me 10 or 15 years to acquire those 20 units, all the while only having to use 3.5% of my funds for each purchase and having the ability to save on my rental costs, it’s a pretty powerful tool as an investor, which was my overall point (and I think Brandon’s too).
    Myles Hersey
    Replied over 1 year ago
    I know this post is old, but wow I really want to look into this refi strategy!! Thanks for the post!
    Nancy Hendryx
    Replied almost 6 years ago
    Sharon, The scenario of a $100k 4-plex–in markets where those deals exist–is within reach for more people than may realize it. But in the Northeast state where I live, there are no such deals available. Even a dilapidated 4-plex in a dicey neighborhood lists for $200k minimum. Then you’ve got your reno costs, which you may or may not be able to finance. I think geography is key to opportunities and entry points for many people who would love to do this but don’t have the resources. Nancy
    Sharon Tzib
    Replied almost 6 years ago
    Yes, Nancy, I totally agree that geography can impact the feasibility of enacting a plan like this. But I still say it’s not impossible – as Brandon has already commented here, there are people doing this 30-60 mins outside of most major metropolitan areas. And besides a no money down investment, 3.5% is about as good as it gets, so if people can prioritize their spending, make a plan, and then find a multi like Brandon describes, it certainly can kickstart your investment career. Good luck!
    John Bryson Investor from Seattle, Washington
    Replied about 2 years ago
    Nancy you are spot on!
    issac
    Replied over 2 years ago
    Sharon, You be very good at what you do because you explained that so well. I couldn’t of said it better.
    Brandon Turner
    Replied almost 6 years ago
    Hey Sharon, yes very true. As Lindsay pointed out, you’d have to keep refinancing them out of FHA to make this fully work, but yes – I totally see your point. I did this with single family houses for a few years, which is how I built up a lot of my rental portfolio! Thanks for jumping in and commenting!
    Jeff Brown
    Replied almost 6 years ago
    Been advising folks to do this for decades.
    Brandon Turner
    Replied almost 6 years ago
    This is why we get along so well, Jeff! You’re a smart man 🙂
    Tosin O.
    Replied almost 6 years ago
    “The best part about working with agents is that it’s totally free for you! The seller of the property typically pays for the agent, which means you can ask a thousand questions and get a thousand answers without needing to pull out your debit card.” Its totally free until you make a purchase. In a any deal, there is only one side truly paying for everything – THE BUYER!. Whatever you think a seller is paying is simply the buyer’s money being redistributed.
    Brandon Turner
    Replied almost 6 years ago
    Hey Tosin, Yeah I’m with Nancy on this one. Yes, in the philosophical sense of the word, it’s being paid somehow and reflecting in your price. However, if a person decides to not use a real estate agent and buys the same house… guess what… it still costs the same amount! The agent get’s paid from the seller’s proceeds, whether or not you use an agent. So if it costs you $0 less to use an agent vs not use one… wouldn’t you call that free? $0 is free in my book!
    Brandon Turner
    Replied almost 6 years ago
    Hey Tosin, Yeah I’m with Nancy on this one. Yes, in the philosophical sense of the word, it’s being paid somehow and reflecting in your price. However, if a person decides to not use a real estate agent and buys the same house… guess what… it still costs the same amount! The agent get’s paid from the seller’s proceeds, whether or not you use an agent. So if it costs you $0 less to use an agent vs not use one… wouldn’t you call that free? $0 is free in my book!
    Nancy Hendryx
    Replied almost 6 years ago
    Tosin, Not sure I agree with this. In the strictest sense, yes. I pay the seller. The commission comes out of the proceeds to the seller, so I’m paying the commission. But I figure out what I will offer, and that number is based on *my* bottom line. I don’t jerk around with counter offers. I put in my highest and best offer at the start. The seller accepts or declines. But I don’t pay more than I think the property is worth or more than will work for the financial scenario I have calculated to cover any of the seller’s costs. On the deal I closed in August, when the building inspection turned up a big-ticket item, I sought a $20,000 seller concession on the agreed upon sales price. I was not going to bring another penny to closing. I later found out that the broker matched the seller’s contribution by reducing his commission to close the gap and make the deal work. So, yes, redistribution, I suppose. You say “tomato.” I say “tomahto.” I got the property for market value, not market value plus 5% commission. That money came out of the seller’s pocket at the end of the day.
    Jim Swanson
    Replied almost 6 years ago
    As a real estate agent for the past 10 years, most of that time working with investors and a real estate investor myself, I hear this stuff from time-to-time. Especially after some seminar has just blown through town. One thing to remember, “The rest of the world is not stupid!” … at least most of the time. Deals like this are possible for only a small window, usually just after a downturn when the vast majority is either too scared to get into the market or “too smart” and are waiting for prices to fall further. As all real estate investors know, the better cash flow comes form the worst neighborhoods. (hence the term “Slum-lord”) Returns on rental properties will always even out over time. A mulit-unit property with cash flow of over 25% (which is what you’d need to do this “hack” on a 4-plex), would be very rare, indeed. As with any investment, the higher the return, the higher the risk. A return as high as this would be associated with either a neighborhood you would not like to live in, or a property you should really sell, NOW. The former because that’s where the cash flow is, the latter because it is worth a great deal more than you paid for it, and that money could go to a much better investment. If this scenario were possible, anywhere, it would very quickly dissappear as other investors would snatch them up, bid it up, or the sellers would wise-up and raise their price. The real estate market in the US is very efficient. That means, all parties are well informed about everything available in it and what properties are worth. So, getting a killer deal that no one else sees is not likely – corruption and “shyster-ism” notwithstanding. An exception is “for sale by owner” properties, where the seller may not have the advantage of a full view of the market. The rule on any real estate investment is, “The way to get the best deal is to discover value where others have not seen it.” Any 4-plex with a return of over 25% is going to be obvious to almost everyone. Professional investors in real estate are happy with an 8-10% return. If they have passed on this deal, be very careful.
    Nancy Hendryx
    Replied almost 6 years ago
    Jim, I would never invest in a neighborhood in which I would not live, nor would I ever be a slumlord, regardless of how it might boost my returns. I am sure what you say has validity and that because I’m new at this I just am missing the finer points. I had planned to either buy a fixer-upper at rock bottom in a good neighborhood or pay more for a turnkey in a good neighborhood. I just bought a turnkey in a top neighborhood (where I had lived for many years previous to starting a family). It’s a 5-unit. I will be moving into one next summer. I had a good down payment but still financed nearly a half-million on the property. The rents are much higher (in some cases two or three times what I’ve seen most post here on BP). I will be living mortgage-free and will clear (yes, after the 50% rule), $2,500 a month. So…that saying, “Your mileage may vary…” I think we have different experiences. I don’t think deals like the one I just closed are common. But they do exist.
    Brandon Turner
    Replied almost 6 years ago
    Hey Jim, I appreciate the comment, though I have to disagree wholeheartedly. We have dozens of people, every single day, introduce themselves in the BiggerPockets Forum from all across the country, in every city. And this strategy is mentioned over and over and over. People are doing it all the time. Yes, you can’t be as choosy in location as a homeowner, but I don’t advocate living in the ghetto either. Within an hour’s drive of every major metropolitan area in America there are locations that work. Perhaps that’s not the area you are a working agent in, but that doesn’t mean it doesn’t exist. I know folks in Portland, LA, Seattle, New York, Boston, Minneapolis, Sacramento etc who are all doing this very same strategy. Are they living in the $1,000,000 house in the best neighborhood in town? Nope! But are they living cheap or free while building wealth for their future? Yah, you betcha! 🙂 Thanks again for reading and commenting!
    Lindsey Spivey Rental Property Investor from Cocoa, FL
    Replied 6 months ago
    Does this work when living for very cheap, but not free until able to refinance?
    Mehran Kamari
    Replied almost 6 years ago
    Very awesome and much needed article Brandon! As you know I started out renting out the spare rooms in my house to help with expenses, buying a multifamily would’ve been a step up. I have a feeling that I’m going to be linking people to this article quite often 🙂
    Brandon Turner
    Replied almost 6 years ago
    Thanks Mehran! Yeah, you gotta get yourself one of those small multifamilies! 🙂 But maybe not in your expensive area! The roommate thing is the same principle. Smart!
    Joe
    Replied almost 6 years ago
    This is a great idea! I currently manage a vacation rental in Costa Rica, and get to live for free. Eventually I’d like to move back to the US and do this in a city that would have good units like you mention, and be kind of touristy, so I could rent them vacation rental style or to long term tenants. Austin, New Orleans, LA come to mind. I guess vacation rental rules vary by city, but I think it would be a good way to increase cash flow and not get stuck with bad tenants. Any ideas about this?
    Brandon Turner
    Replied almost 6 years ago
    Hey Joe, thanks for reading! That’s cool you get to live for free in Costa Rica – I’m very jealous! And yeah, I think that would be neat to do a vacation rental in a busy tourist area – and you can get even more cash flow that way if done correctly! Best of luck!
    Brandon Turner
    Replied almost 6 years ago
    Hey Joe, thanks for reading! That’s cool you get to live for free in Costa Rica – I’m very jealous! And yeah, I think that would be neat to do a vacation rental in a busy tourist area – and you can get even more cash flow that way if done correctly! Best of luck!
    Jonathan
    Replied almost 6 years ago
    Great article, Brandon! This is exactly what I did. I bought a multi-family at the end of 2011 using a FHA Loan. After some general market appreciation and some cosmetic updates, I’m now looking at cash out refinance that will eliminate my PMI and net me $19,000. It’s time to go shopping again and do this all over again. Cheers! All the best, Jonathan
    Brandon Turner
    Replied almost 6 years ago
    Hey Jonathan, Nice! I love to hear this stuff! Best of luck on your shopping! Go buy something even better now!
    Lindsay Wilcox
    Replied almost 6 years ago
    I just bought and moved into my first triplex within the last month, and just got the last unit rented this week! There was one 48-hour span where I was paid $880…which is almost as much as I take home in my bi-weekly paycheck at my regular job! Purchase price: $49,900 Repairs: $85 to replace a stove 3.5% down would have been $1,747.50, but with 6% seller’s assist, I closed for $30.69 out of pocket. Yes seriously. PITI: $520.72 Utilities: ~$250 (single water/electric meters for the house, so owner has always paid utilities) Monthly income from other two units: $975 (they’re very small–less than 1,000 sqft together) Getting used to being paid $200/month to live in my house!
    Brandon Turner
    Replied almost 6 years ago
    Hey Lindsay, That is so cool! Congrats on your success so far. You are going to learn so much this way, which will help you so much in your future! Keep us updated on how it goes! Reply Report comment
    Brandon Beale Real Estate Investor from Davis, West Virginia
    Replied over 3 years ago
    I’m curious about something. Does the seller assist apply to SFR? Don’t get me wrong, I love the idea of doing this with a fourplex. But there just aren’t many of those on the market in this area. Just a curiosity I have…
    Brandon Turner
    Replied almost 6 years ago
    Hey Lindsay, That is so cool! Congrats on your success so far. You are going to learn so much this way, which will help you so much in your future! Keep us updated on how it goes!
    Lindsay Wilcox
    Replied almost 6 years ago
    I think I’m realizing I don’t want to go larger scale with it. I like the property I have now, but to be successful in real estate, like anything, requires a lot of time and attention. It’s basically a career or a side career, and I think I like the field I’m in too much to want to split my focus on a bunch of properties that aren’t right here attached to where I live. Yeah, I have to live somewhere, and yeah, it’s certainly nice to be making money each month instead of “throwing it away,” but more and more I’m realizing I don’t want to “be a real estate investor.”
    Brandon Turner
    Replied almost 6 years ago
    Hey Lindsay – that’s a great realization. A lot of people try to become investors and then realize way too late that they don’t really like it! I think you gotta do what you love, and if being this kind of investor ain’t it – don’t do it! That said, there are a lot of other ways you can use RE to help build a financial foundation that doesn’t have to do with landlording, so maybe another tactic may intrigue you some day? Either way – do what makes you happy and fulfilled!
    John Adams Investor from Atlanta, Georgia
    Replied almost 3 years ago
    Lindsay, utility bills are always smaller if people are charged for them — the other way to phrase is to say ” People that get utilities included often use more than they would if paying for it.” My point is that you should try and charge for utilities if/as/where possible. If your triplex is wired such that each unit has its own electrical panel, then you can install a perfectly adequate (but not commercial-grade) electric meter, and charge for electricity. Check out sites like http://www.submetering4less.com/ Installation is really pretty easy. You can also do this with water, of course.
    Susan Cain
    Replied almost 6 years ago
    This is not only a great way to get started in R.E. investing but can also be used to supplement Social Security. A friend sold the family home, paid cash for a nice duplex. She then retired and lived on her SS plus rental income.
    Brandon Turner
    Replied almost 6 years ago
    Hey Susan, excellent advice and so true! I often talk about this strategy for young folks, but it’s maybe even better for retirees! Thanks for the tip!
    joe sillaman
    Replied almost 6 years ago
    I wish there were $200,000 4-plex’s in Hawaii…
    Brandon Turner
    Replied almost 6 years ago
    Hey Joe – Ironically, the podcast that is coming out this week is with a guy who did this very strategy in Hawaii, on a $400,000 house with a mother-in-law apartment. So it is possible! Be sure to listen to the show this coming Thursday! 🙂
    Brandon Turner
    Replied almost 6 years ago
    Hey Joe – Ironically, the podcast that is coming out this week is with a guy who did this very strategy in Hawaii, on a $400,000 house with a mother-in-law apartment. So it is possible! Be sure to listen to the show this coming Thursday! 🙂 Reply Report comment
    Brandon Turner
    Replied almost 6 years ago
    Hey Joe – Ironically, the podcast that is coming out this week is with a guy who did this very strategy in Hawaii, on a $400,000 house with a mother-in-law apartment. So it is possible! Be sure to listen to the show this coming Thursday! 🙂
    Stephanie Cobb
    Replied almost 6 years ago
    Unfortunately, the law just changed in Tennessee. Triplexes and 4-plexes are now classified as commercial. Duplexes are as well unless they are owner-occupied. So basically, if you purchase a duplex as an investment property and end up moving out, it becomes commercial as well.
    Brandon Turner
    Replied almost 6 years ago
    Hey Stephanie, interesting! I didn’t hear about this. However, I’m curious – it’s not generally a law that makes any difference, it’s Fannie Mae, Freddie Mac. So I don’t think (I don’t know though) that it would make any difference at all what your state legally calls it. The Federal Government and the Banks are the one’s that matter. Again, don’t quote me on this, but I’d be surprised if banks no longer lent on 4plexes as residential, since it’s a federal designation. Do you know any more info on this? Am I wrong?
    Stephanie Cobb
    Replied almost 6 years ago
    I was referring to property tax classifications. Sorry for not being clear!
    Bill Turner
    Replied almost 6 years ago
    I know you are a brilliant man, just look at your last name. : ) I have often heard you speak of this on the podcasts. As a new investor and new landlord, do you recommend this scenario because I have often thought about doing this as a first time home buyer.
    Brandon Turner
    Replied almost 6 years ago
    Hahaha thanks Bill! And yes – terrific last name, designated for those smart enough to carry it. And for Pirates in disney movies!
    Bill Turner
    Replied almost 6 years ago
    I know you are a brilliant man, just look at your last name. : ) I have often heard you speak of this on the podcasts. As a new investor and new landlord, do you recommend this scenario because I have often thought about doing this as a first time home buyer.
    Dave Mays
    Replied almost 6 years ago
    Do this before you get married and start a family Sincerely, Mr. Obvious
    Brandon Turner
    Replied almost 6 years ago
    Yeah, being single definitely helps a lot! However, I would say that if someone is looking to get started – no matter how many kids they have – this should be a consideration. The question becomes: how bad do you really want financial freedom? Enough to move your family into a small multifamily?
    Nick
    Replied almost 6 years ago
    That’s a great post Brandon and is exactly what my wife and I are looking to do. The problem we are running into however is the fact that the cash flowing deals are in very iffy neighborhoods where we personally don’t want to live. It’s been common for a duplex in a nice, safe, desirable area to sell for $200k (and I’m not on either of the coasts….I’m in the Midwest) This is where we struggle because we know we wouldn’t be happy in the iffy areas but I also don’t want to knowingly buy a dud of a deal just to be in a safe, desirable area. Feeling stuck at the moment not knowing really what to do! Reply Report comment
    Nick
    Replied almost 6 years ago
    That’s a great post Brandon and is exactly what my wife and I are looking to do. The problem we are running into however is the fact that the cash flowing deals are in very iffy neighborhoods where we personally don’t want to live. It’s been common for a duplex in a nice, safe, desirable area to sell for $200k (and I’m not on either of the coasts….I’m in the Midwest) This is where we struggle because we know we wouldn’t be happy in the iffy areas but I also don’t want to knowingly buy a dud of a deal just to be in a safe, desirable area. Feeling stuck at the moment not knowing really what to do!
    Brandon Turner
    Replied almost 6 years ago
    Hey Nick, thanks for the comment! This is a concern, cause you don’t wanna live in the ghetto – and I would never advocate for that. The question is though: will you sacrifice one year of living in the “not perfect” neighborhood where this is possible in exchange for getting started? How much does it mean to you? This obviously isn’t for everyone, and “happy wife, happy life” but true financial wealth does take sacrifice sometimes – so this may be a way to do that. I dunno – just a thought! (Please don’t move to the ghetto though! That’s not what I’m saying! 🙂 )
    Nick
    Replied almost 6 years ago
    That’s a great post Brandon and is exactly what my wife and I are looking to do. The problem we are running into however is the fact that the cash flowing deals are in very iffy neighborhoods where we personally don’t want to live. It’s been common for a duplex in a nice, safe, desirable area to sell for $200k (and I’m not on either of the coasts….I’m in the Midwest) This is where we struggle because we know we wouldn’t be happy in the iffy areas but I also don’t want to knowingly buy a dud of a deal just to be in a safe, desirable area. Feeling stuck at the moment not knowing really what to do!
    John Maloney
    Replied almost 6 years ago
    Great post! This is a strategy I’m thinking about using for my next residence.
    Brandon Turner
    Replied almost 6 years ago
    Thanks John! Let us know how it turns out!
    Nikki H.
    Replied almost 6 years ago
    Great article. My husband and I have been looking for this type of deal in the SF Bay Area for months now, and we can’t seem to get the 50% rule to work for us. I work in silicon valley and it is just not feasible for me to increase my commute from 1-2 hrs to move far enough outside the bay (like sacramento). Any of the deals that would make sense are either in very sketchy areas, (we are already looking in the “less desirable” neighborhoods) or sell way over asking price or for cash. We are working with an FHA 203k because most of these properties are over 100yrs old and have considerable work that needs to be done, but an FHA loan puts us at a disadvantage in this area with many flush investors willing to put down more or all in cash. We are now in contract on a place which will help us build wealth in the long term, but we will certainly not be living there for free. We are from Houston and its been tempting to just buy a rental there since they are so cheap, but we want to stop renting and gain the first hand experience of being local.
    Brandon Turner
    Replied almost 6 years ago
    Hey Nikki, thanks for the comment. Yeah, I know some areas are real tough to make this kind of thing work – Bay Area being one of the worst. You may need to settle for less cash flow, or just avoid this scenario until the right property comes up. Thanks and best of luck!
    Alex
    Replied almost 6 years ago
    Well this is not free. 50K or what ever you manage to put down to get to 150K from 200K divide by how many month you end up living there.
    Brandon Turner
    Replied almost 6 years ago
    Technically yes, it would take money to do this. However, when you put money down, that money isn’t “spent” because it’s equity. So there is no change in your net worth. So when you sell, you should (as long as prices don’t drop significantly) get all that money back. So in the grand scheme of things, when done correctly, it is “Free” but it doesn’t necessarily take $0. (though it could – see the comments above this where some people have paid under $1,000 to make this work!) Thanks for the comment Alex!
    Bruce May
    Replied almost 6 years ago
    Great comments from everyone. We sold our house almost two years ago and have been renting. My plan has been to use this technique when we buy our next property.
    Brandon Turner
    Replied almost 6 years ago
    Thanks Bruce – hopefully you can find a killer deal to move into!
    Frank O
    Replied almost 6 years ago
    I definitely will use this advice when acquiring a buy and hold. You can’t go wrong with this strategy. Now all I need to do is sell my current house first.
    Erik
    Replied almost 6 years ago
    It may be possible to borrow against your house and take out a conventional loan on a multifamily. If it produced sufficient cash flow it may even help reduce the cost of your current home! I would be interested to hear your thoughts and others on if this method makes sense. Thanks , Erik Reply Report comment
    Erik
    Replied almost 6 years ago
    It may be possible to borrow against your house and take out a conventional loan on a multifamily. If it produced sufficient cash flow it may even help reduce the cost of your current home! I would be interested to hear your thoughts and others on if this method makes sense. Thanks , Erik
    Brandon Turner
    Replied almost 6 years ago
    Hey Frank, thanks for reading and commenting! And now seems to be a good time to sell! 🙂
    Erik
    Replied almost 6 years ago
    It may be possible to borrow against your house and take out a conventional loan on a multifamily. If it produced sufficient cash flow it may even help reduce the cost of your current home! I would be interested to hear your thoughts and others on if this method makes sense. Thanks , Erik
    Jag Sekhon
    Replied almost 6 years ago
    Great article Brandon! This is exactly what I was planning to do with my first property!
    Brandon Turner
    Replied almost 6 years ago
    Thanks Jag! Do it!
    Erik
    Replied almost 6 years ago
    This is exactly what I did in July, 2013. I worked with a real estate agent and he pushed me to check out a duplex. I was not all for it but by the end, I have moved to only 4plexs and finally purchased a great one. I got a fully occupied complex for under $145k. Since then I have made some upgrades and increased rent $100. It has its times, but I love doing it and would not do anything different looking back. At 23 years old I feel like this has been a blessing as I do not have to pay anyone rent!…well except Wells Fargo… Cash flow is king!!! thanks, Erik
    Susan Cain
    Replied almost 6 years ago
    Way to go, Erik. A Real Estate mogul in the making. Best of luck to you. At your age, you can do this every two years and have a nice portfolio while you’re still young. Reply Report comment
    Susan Cain
    Replied almost 6 years ago
    Way to go, Erik. A Real Estate mogul in the making. Best of luck to you. At your age, you can do this every two years and have a nice portfolio while you’re still young.
    Shaun
    Replied almost 6 years ago
    Nice piece Brandon. One thing I would change in an analysis would be to evaluate and apply the 50% rule based on being fully rented. So with for 4-plex potential rental income is $3200 so by the 50% rule expenses would be $1600 and if you got that $700 mortgage you’d clear $100 with the $2400 of actual rent. Still pretty awesome given no house payment and accounting for your units expenses and maintenance as well. I think this is important since things like a roof or furnace won’t cost less because you live there. Lawn care and snow removal won’t cost less (unless you want to do it) because you live there. Even if you do save on things you still want to make sure it will work if you turn it to a full rental property in the future. I assume that for most that is the goal.
    Henry
    Replied almost 6 years ago
    Good article, however everytime I hear people say “i’m essentially living for free” it makes me cringe. You have to take into account opportunity cost since you could rent out the unit you are living in. Once the property is owned and in one’s portfolio, each unit should be considered independently. The time spent managing the property should also be taken into account and priced accordingly to how valuable one’s time is. I know its being picky, but “living free” might be too generous. As for the actual investing method, I think it is a great way to invest (especially for young investors wanting to get in the game).
    Darius moody
    Replied over 5 years ago
    I have a question. I’m only 20 years old, i’m in the military, and i’m very interested in investing in real estate. Do you think i’m too young to get started, am i in over my head? If not, any advice?
    Cameron Benz
    Replied over 5 years ago
    Darius, You’re not too young. Good job on thinking ahead. If you can save your money and take full advantage of being in the military, you should be able to save up some money plus, correct me if I’m wrong, I’d think you have access to VA loans. You’ll be able to get ahead while your squad buddies are busy partying their money away.
    Deanna Opgenort Rental Property Investor from San Diego, CA
    Replied over 3 years ago
    You actually have a HUGE advantage (VA loan), and some unique connections — military families often move every 2 years (high turnover) BUT have some great tenant qualities (their rent WILL be paid, ’cause their CO will make SURE it’s paid!). Managing a property long distance isn’t the easiest thing in the world, but it’s possible. Your housing allowance can go toward your house payment. If you can afford it, get a house larger than you need & rent out rooms to other military folk (close to base, rent+util = less than housing allowance, plus a decent back yard with a BBQ & you could have a waiting list a mile long). When you get moved keep the property but turn it over to a property manager. Repeat every 2 years as possible when you get stationed elsewhere.
    Cameron Benz
    Replied over 5 years ago
    I didn’t even have to read the byline to know this was a work of one Brandon Turner. And this is a strategy I plan to employ once I get some things sorted out. For those saying this isn’t doable, I just saw a tri plex in Tacoma sell for $100k. Rents should be $650. It appeared turn key, so, assuming you couldn’t get it below $100k, it should still cash flow $300 or so dollars a month even if owner occupying one unit. It was an ok part of town. I’d probably have jumped on it but I don’t have things in order just yet.
    Rob
    Replied over 5 years ago
    I would love to do this but i have been searching for these in my area (greater boston) and the numbers never work. Most duplexes go for 500k+ and rents are 1300.
    Drey
    Replied about 5 years ago
    In regards to dealing with tenants that know you own the property- I feel that you SHOULDN’T let them know you own it. I’ve never been OO, but I live within 10 miles of 3 of my condos. The tenants who know I’m the owner are the ones that ask for more, expect more and complain more. I’ve learned to tell everyone I’m the property manager (which I am) and if they want something an owner would have to okay, I tell them I’ll check with the owner and get back to them. Rent is sent to a PO Box in name of a Trust (need to change this to an LLC). Let’s face it, the bank is the TRUE owner and I think tenants should be on a “Need to Know” basis about who owns the property. I’m happy being a “lowly” PM/Maintenance chick and cashing their checks. If I had done this in the beginning, I would have saved myself days of headaches and discomfort.
    Kalen Bruce
    Replied almost 5 years ago
    This is an awesome post. My wife and I have a rental property and are planning to buy a duplex or a four-plex next. Like you said, finding a good deal is so important and after that (if you finance) it’s all about your mortgage, a.k.a your interest rate. A low interest rate can be the difference between profiting and paying. Another great benefit to this method is getting a residential loan since you’re occupying the home. Generally when buying rental properties, you need an investment loan, which have very high interest rates. Thanks for sharing this with us!
    Alexis
    Replied almost 5 years ago
    I live with a family that does this and they make enough money to pay off their mortgage each month!
    Alicia
    Replied almost 5 years ago
    I intend to do this at some point. I’d love to own a duplex and live in one half of it. I currently have a rental unit, but it was out of desperation… jumping into rental properties properly would be so awesome.
    Stefan
    Replied almost 5 years ago
    I’ve been thinking about doing something like this, but can’t quite seem to get a positive cash flow based on a few scenarios I’ve run. Would you ever suggest settling for paying $200 or $300 a month out of pocket to live in the building?
    Brandon Turner
    Replied almost 5 years ago
    Hey Stefan, definitely nothing wrong with that especially if it’s cheaper than where you would live anyways. However, I’d run the numbers as if you won’t be living there at all – because someday you won’t be but it will still be an investment!
    Brittany DeWitt
    Replied almost 5 years ago
    We did this and it immediately, dramatically changed our financial situation. We went from just making rent to having money to save into an emergency fund and future purchases. Thanks Brandon! 🙂
    Jim Iorio
    Replied almost 5 years ago
    Great Article, Brandon! I’m actually looking to do this right now. I live with family in Daytona Beach, FL and it’s about time I get out on my own. I have a fledgling wholesale business (I’ve made 10k this year) so virtually no income to speak of. My credit score is pretty good (700+) and I have no real debt. Naturally, Hacking my housing and living for free is the way to go, but I think the challenge I would have would be getting financing. Any suggestions/thoughts on how to overcome this? Thanks! Reply Report comment
    Jim Iorio
    Replied almost 5 years ago
    Great Article, Brandon! I’m actually looking to do this right now. I live with family in Daytona Beach, FL and it’s about time I get out on my own. I have a fledgling wholesale business (I’ve made 10k this year) so virtually no income to speak of. My credit score is pretty good (700+) and I have no real debt. Naturally, Hacking my housing and living for free is the way to go, but I think the challenge I would have would be getting financing. Any suggestions/thoughts on how to overcome this? Thanks!
    Nic
    Replied almost 5 years ago
    Great read, even a year later! I’m trying to get on board with this “house hacking strategy” in the Seattle area, but the challenge I’m coming across is 15%- 25% down payment required for multifamily homes (2-4 units), opposed to the minimum of 3%-5% for a single family. Any suggestions, ideas or loop holes?
    Brandon Turner
    Replied almost 5 years ago
    Hey Nic, thanks! Actually, you can use the 3.5% FHA loan on 1-4 unit properties, so if your bank told you otherwise, talk to another bank! Let us know how it goes!
    Frankie Woods Investor from Albuquerque, NM
    Replied over 4 years ago
    Wise advice as always! I’m learning so much! Thank you again!
    James Poe Contractor from Mc Kinney, Texas
    Replied over 4 years ago
    This strategy is perfect and great for the niche I want to jump into. Properties around universities. The lack of credit is the only thing hindering my plans. Soon though. In due time.
    Michelle Hoover
    Replied over 4 years ago
    I’ve read the 1-2% rules and the 50% rules. I get it. But I would love to see an equation that includes the fact that I’m living in the place versus not living there. I’m looking at Massachusetts, which has extremely high two-family costs: a million seems the normal price, which doesn’t seem to get us anywhere near these rules. But should I somehow figure a rent amount that we might have to pay ourselves for living somewhere similar? And then do the math? I’m not finding anything on the web that considers this. Thanks!
    New
    Replied about 4 years ago
    We just bought a multifamily in Mass and here are some expenses that we didn’t consider: 1. Fixing stuff that “breaks.” Landlords tend to patch up houses, they don’t tend to replace things, so lots of things are going to break, including things that you yourself wouldn’t care about in your own unit (tiny holes in screen windows, screen doors you have to jiggle to close, etc.), but tenants will complain about. And complain about. And complain about. Because you’re right downstairs. 2. Rental income is taxed as income, and only a portion of it gets written off on your taxes. The part of rental income that goes to the principal of your mortgage can NOT be written off your taxes. Only the portion of the interest, property taxes, and common utilities that correspond to the rental units can be deducted from the rent. That is, we take the Rent – 2/3 x (property taxes, interest, utilities) = our income (we have a 3 family, so only 2/3 of the house is rental property.) Similarly, we can take only 2/3 of the depreciation of the building as a deduction. So, I think there’s about $200 a month in income tax that we did not budget for. 3. If you have a net rental loss, you typically can’t take that loss against the income you make from your job because you can’t mix passive and active income (there are some loopholes if your income is low enough.) 4. If you make any improvements or buy equipment, like a lawn mower, you can’t deduct those expenses in that tax year – you have to take the deduction over several years. 5. Vacancy. I’m not crazy about my tenants – they treat the place like it’s their own – always in the yard, fixing cars in the driveway, hanging out in the basement. But my husband is worried that if we raise the rent too much (when we inherited them they were paying $400 below market value), they’ll leave. I say good riddance, but he sees the loss of months of rent and imagines the next tenants would be worse. I would research the vacancy rate in the area you’re looking – I think you can find it on the Census webpage. 6. “Refreshing” – we haven’t had to do this yet, but once tenants leave, you’ll have to spend money on repainting, cleaning carpets, etc. 7. Common utilities – not just water, but lights in the basement, sometimes the energy for the washers and dryers, outdoor lights. 8. In Massachusetts, especially this past winter, plowing. In other words, don’t get a mortgage and set rents up so that every penny is accounted for – there are so many other expenses you might not see coming.
    JD
    Replied over 4 years ago
    Great article! I’m just beginning the search for a multi-family property and the MLS doesn’t have much going on in inventory. I’ve heard of “canvassing”, or “driving for dollars”, where an investor will drive through neighborhoods looking for properties (regardless if they’re for sale or not), track down the owner and ask if they’d be willing to sell. Has anyone here tried that? Any other ideas of finding these hidden gems? Thanks!
    lk
    Replied about 4 years ago
    This is a little misleading. Being a landlord is a job, so you’re not “living for free.” Also, living with tenants is not the same as living with other renters – tenants harass you about stupid stuff and you have to get them to follow the rules and they use your property as if it’s their own. Also, I would take a much more detailed look at the financials – for instance, rent is considered “income,” which can increase your taxes, and you can only deduct a portion of the mortgage from the rent. In general, I just think it’s important to note that owning and living in a multi-family is not the same as living as a renter in a multifamily, and it’s very different from owning a single family.
    Arif Chowdhury Investor from Dayton, Ohio
    Replied almost 4 years ago
    This article is spot on! Bought a 4-plex a few months ago with my VA loan and rent from the other 3 units more than pays for mortgage and expenses. Sweetest part of the deal is that the appraisal came in $40k under asking (closest comp was a few miles away in a less desirable part of town) so it was sold to us at appraised value. Leases are about to come up for renewal soon and we will be raising rents to fair market since the previous owner left it at the same rate for the past 10 years. Not only will we be able to generate cash flow from the rents on a monthly basis but once we move in (still in process of renovating the unit we’re moving into) we’ll be able to put the amount we currently pay in rent into our pockets. Thanks to BP for the inspiration and validation!
    Erika Carter Residential Real Estate Broker from Chicago, IL
    Replied almost 4 years ago
    Great post! Im in the process of purchasing my first multi unit, which I intend to occupy 🙂
    Mikael Winkler Rental Property Investor from Columbus, OH
    Replied over 3 years ago
    Fantastic article!! I’m looking to do this with my first investment deal, as well.
    Kedrick Thornton Real Estate Agent from Washington, DC
    Replied over 3 years ago
    Great post! I’m considering doing this in Washington D.C. I’m devising my plan for funding the deal now and considering the 203K loan.
    Ana P. from Seattle, Washington
    Replied over 3 years ago
    Hi! This is very interesting and has given me lots to think about. Since I started following you I have been looking at multi-family properties and the numbers are just so radically different. I know every city is different, but you talk often about Seattle, and something like 4-plexes for 200,000 seems impossible. Duplexes for 700,000 is the cheapest i find in zillow, redfin, etc. How can something like that still be a good deal?
    Paul Winka
    Replied about 3 years ago
    Ana, I hope this helps, and take into consideration I am not too seasoned in REI yet: The way I think about the numbers is that for a given area, they are generally a function of the purchase price. For a SFH, a good rule of thumb for the rents charged each month is 1% of the value of the home…or, the purchase price if you are just now buying it. So a $200K property will yield about $2000 month in rents. I would expect that the higher the value of the home, the more than 1% will adjust downward. That is, a $700K SFH will only rent for, say, $5000 a month. In your area, you are talking about a $700K 4-plex though. And for a given value, a 4-plex should do better than a SFH. So if a SFH is getting 0.66%, then a 4-plex would be getting closer to the 1%. How can a $700K 4-plex be a good deal in your neighborhood? See if the numbers make sense. If that $700K 4-plex is pulling in $14K (2%!) in rents each month, call me! Hope that makes sense.
    Paul Winka
    Replied about 3 years ago
    Ana, I hope this helps, and take into consideration I am not too seasoned in REI yet: The way I think about the numbers is that for a given area, they are generally a function of the purchase price. For a SFH, a good rule of thumb for the rents charged each month is 1% of the value of the home…or, the purchase price if you are just now buying it. So a $200K property will yield about $2000 month in rents. I would expect that the higher the value of the home, the more than 1% will adjust downward. That is, a $700K SFH will only rent for, say, $5000 a month. In your area, you are talking about a $700K 4-plex though. And for a given value, a 4-plex should do better than a SFH. So if a SFH is getting 0.66%, then a 4-plex would be getting closer to the 1%. How can a $700K 4-plex be a good deal in your neighborhood? See if the numbers make sense. If that $700K 4-plex is pulling in $14K (2%!) in rents each month, call me! Hope that makes sense.
    Pavel Yusupov from San Jose, California
    Replied about 3 years ago
    I’m late to the party, but I want to thank Brandon for this outstanding post! Thanks to this information, I’m confident that I will be able to succeed. I cannot wait for the moment when I can contribute on my own accord, along with guys like Ben Leybovich.
    Kareem
    Replied about 3 years ago
    I just got your book on Amazon and I searched out this blog on house hacking. I am preparing to start and will like to use the hacking method to put my feet in the water. I want to ask if I can use the hacking way with a business name or it must be on a personal name.
    Chester
    Replied almost 3 years ago
    Reminds me of the phrase “the rich get richer…..”. I’ve looked into this SEVERAL times, and I was LAUGHED AT by all the banks I talked to about a loan for this type of property. Not only that, I get different answers from everybody, so it is impossible to know what I need in order to do something like this. I even went so far as to find an investment banker who would talk to me about this type of thing, so I could hopefully get some REAL answers. He told me that yes, everybody is going to give you a different answer because no two loan/banking companies have the same rules, even by government standards. He also stated they are out to MAKE money, not SAVE YOU money…so they are going to lie, cheat, and steal to the best of their abilities to get as much as they can out of you. And if they feel that you aren’t “money in their pockets”, they will NOT give you the time of day! In essence, with the few people who would actually talk to me, and the fewer people who would answer my questions……..it all comes down to one thing…… You HAVE to have money in order to make money or invest in anything, and you have to do it THEIR WAY, because they sure as hell aren’t going to help you out. Take advantage of you and lie to you, absolutely…but help you out? Forget it.
    Robert Jones from Memphis, Tennessee
    Replied almost 3 years ago
    This was great info. Can’t wait to buy my first property through house hacking.
    Jason Genece from Waltham, Massachusetts
    Replied almost 3 years ago
    I am currently in the process right now to close on a duplex later next month and we are going to use the house hacking strategy! Even though my wife and I should had done this strategy first, we currently live in a house that we plan to rent out while we house hack the duplex. Problem is the rent comps barely cover the PITI at our current home. We would possibly break even or be negative cashflow just around $100. Even though we will save around $600 from house hacking the duplex we won’t cash flow our current home. I understand a tenant will pay down mortgage for us and increase equity over time but I originally wanted to house hack so we CAN cash flow our current home? Breaking even on the rental be a wrong decision on our case?
    Steven Wilson from Bryan, Texas
    Replied over 2 years ago
    Jason, How has the duplex/ SFH situation worked out?
    Lisa
    Replied over 2 years ago
    Pretty component of content. I simply stumbled upon your website and in accession capital to claim that I acquire actually loved account your weblog posts. Any way I will be subscribing in your feeds or even I success you get entry to constantly fast.
    Alisha Burgfeld from Fort Campbell, Kentucky
    Replied over 2 years ago
    @Brandon Turner, Thanks for the post- I read this after listening to your latest BP podcast. One thing that has been mentioned but that I don’t completely understand yet is the concept of “after a year” being able to refinance out of the FHA loan with 20% equity. Or something another member mentioned above “80/10/10 using a private or commercial lender for the second and move on to the next property” Can you explain this a bit more? I just bought the “Set for Life” book so perhaps its mentioned in there? Good luck on the Best Sellers List! If i do not own any real estate currently would you advise against purchasing a MF unit now when I’ll be moving out of the state in a year? If you would advise against it then what do you recommend doing in the mean time to jump into the REI arena? Unfortunately the location I’m at now is a great location to buy MF homes, however I believe I’ll be moving to the D.C. area and from what I’ve seen its not as big there. So i’m also worried that if I wait until I move then I still won’t be able to find anything because of the area. I’m also interested in your response to @Jason Gonzalez’ post in regards to him purchasing a deal where he won’t cash flow, and if its still worth using this strategy- understanding that a tenant will pay down the mortgage and equity will increase over time.
    Tim Race Investor from Plymouth, Pennsylvania
    Replied about 2 years ago
    Great post! Let me say that I really like the podcast and am listening to every episode from the beginning. Also, BP has become my new site to sift through on a daily basis. I recently purchased my first house, a duplex. Purchase price was $85,000. I put down 3.5% with a FHA loan. The inherited tenant pays $600/mo. I only cashflow $30/mo off that unit, but having a tenant defiantly helps pay the mortgage. In the future I plan on cash flowing at at least $100/mo per unit. I really appreciate the content here, and I’m excited to learn something new every day!
    Dean Weinberg
    Replied about 2 years ago
    Has anybody done this in the Phoenix, AZ area? I am looking forward to hear from folks in AZ. Thanks in advance.
    Christian
    Replied about 2 years ago
    Hey my name is Christian. Am I too young to start becoming a real estate investor? Reading various books by outstanding authors in the field, I feel as if real estate is a great investment to build wealth in the future. Checking out national and local factors and focusing more on the local factors before purchasing a property, Like every investor says choose a neighborhood you would see yourself living in. The area around the property is growing, new schools are being built, commuting to work is very easy, and everything you need is nearby. The house sold for 115K, and I couldn’t help but imagine that if I purchased the property and had tenants renting it, after everything I could pocket 300 a month, which is a great passive income. And at the same time I can either keep renting the property until the mortgage is paid off in about 6 years or so, and can own the property at 26! And either sell it for a great profit or own a home mortgage free! But my goal is to grow as an investor. Any tips and advice? Thank you.
    Terry Pratt
    Replied about 2 years ago
    Sorry, but if you have a minimum wage job and rent consumes half your income, you’re probably not going to get into a home of your own. Ever.
    Megan Thomas from Missouri
    Replied almost 2 years ago
    Hey Brandon! Love your blog and podcast. I was listening on a regular basis and decided I’m all in for house hacking. I already own my four bedroom home. I purged most of my belongings in order to free up two bedrooms and moved into my basement tenant space. My problem is finding tenants! I have had hardly any interest! I don’t know what I should be doing. The bedrooms are empty but I’ve considered airbnb now as well. I’m up for a private conversation if you have the time! I’m geared toward real estate investment as a huge part of my plan for the future. I’m single and live simply so I have lots of room for self-sacrifice of comfort and privacy if that makes sense. Would love to hear any advice.
    James Hyatt from greer, sc
    Replied almost 2 years ago
    Hey Brandon I kinda of have a diffrent situation I bought a single family house last September. I bought the house for $75,253.00 the house payment is $525.00 a month. The house has been estimated around a value of $135,000.00. Would it be a viable option to maybe get a second mortgage or home equity loan to put down on a mutlti-family house and start from there ?
    Eliseo Medrano
    Replied over 1 year ago
    Brandon!! 100% GOING TO DO THIS! Wish me luck brother!
    Eliseo Medrano
    Replied over 1 year ago
    Brandon!! 100% GOING TO DO THIS! Wish me luck brother!
    Steve Joo from Albany, California
    Replied over 1 year ago
    I’m getting ready to purchase my first multi unit that needs some work before it can be rented. From a numbers standpoint everything looks great and we are getting a killer deal on the unit. My question is can these be a bad idea since it’s a foreclosure with zero tentants at the moment and will be a few months at most to have them? The long term I see will outweigh the few months of not collecting rent. Thoughts on this?
    Lazaro Vento from Miami, Florida
    Replied over 1 year ago
    Am on my second house hack the first one I was in for about 2 years. I rented it for 2,750 per month a large house plus guest house and was able to dived a 3rd unit and still had lots of room for me and my family. The guest house brings in about 2,200 per month on Airbnb and the studio that I created makes about 2k. So I was able to live rent and bill free for 2 years. Now it was time for an upgrade so I found a larger house that rents for 4,500 I was able to get 2k from a normal renter for the part of the house that I lived in. So now am at only 2500 per month the large house allows for a separate rental space for airbnd that will bring in about 2k so my net will be 500 per month.
    Theo H. from Detroit, Michigan
    Replied over 1 year ago
    In the process of possibly buying the Duplex that we currently live in and renting out the other side (current tenants would continue to rent). Purchase price would probably be $280k-$300k with the payment being about $1500 and the other side paying $1200 for rent a month. Considering we currently pay $1200 rent a month as well, I see this as only paying $300 per month to live. Is this the wrong way to look at it? This is my first go at this and don’t want to screw up our financial situation for years to come. TIA
    Justin Miest from Cannon Falls, Minnesota
    Replied over 1 year ago
    Great article! I’ve been listening to all the podcasts as fast as I can and am hoping to use this method as soon as possible to get into real estate!
    Daniel Callahan from Milwaukee, WI
    Replied over 1 year ago
    You’re my hero B. I cant wait until i really get the ball rolling and hopefully be able to thank you in person for contributing to my success in this game. The amount of info you give out for free is so humbling and admirable. I did however pay for two of your books that should be arriving tomorrow so I cant wait to dive into those! Keep it up man! Love what you’re doing.
    Megan Thomas from Missouri
    Replied about 1 year ago
    Hi Brandon, great post! I appreciate this especially because it’s exactly what I’m in the process of doing now. This will be my third property, the other two of which are rentals now. This one is different for me since it’s a multifamily (fourplex) and I will be living in it as well. The problem or question I am running into is how to act as a business without actually opening one. Can I name myself like a business, come up with a business card, logo, email, phone number, etc as I’ve seen recommended a lot on here? Would I have to open an LLC for that? Any advice would be greatly appreciated! Thank you.
    Cyndi Bass
    Replied 12 months ago
    Hope someone still checks this post:) Question: option to buy 4 condos in large complex. Does this change me to commercial secondary to being in large complex?