It’s the most wonderful time of the year! And no, I’m not talking about the holidays. I am talking about the time where I get to write about my most recent house hacking deal.

I apologize, this blog post is a few months overdue, but I wanted to wait for the final rehab numbers to come in before sharing.

In this article, I am going to get into exactly how I found and funded my last deal, dive deep into the numbers, and show how it has allowed me to hit financial independence in under three years. Let’s jump in!

Finding & Funding My Third House Hack

I found house hack No. 3 just like I found No. 1 and No. 2—on the MLS. Why do I use the MLS? Because it is the easiest way.

Scanning the MLS

When house hacking, it doesn't matter that you get the lowest price for a deal. It matters that you get into a deal as quickly as possible so you can start saving on rent, cash flowing, and building equity. Plus, once you're in, you can start that one-year countdown to picking up the next one.

With the house hacking strategy I was planning to deploy, almost all of the properties within my search criteria would have worked. So, the golden nugget here is: what was my strategy exactly?

Related: Life Hacking in Pursuit of Financial Freedom: How I Add $1,500+/Mo to My Income

My plan was to find a single family residence that I could do a 5 percent down conventional loan on. I also wanted my own bedroom; I wanted to occupy one room while renting out the other four or five.

Also, I LOVE flexibility. If there was a way for me to convert some or all of this property into a short-term rental, even better!

I knew I could get much more in rent by renting by the room, and I certainly did not mind living with roommates. I’ve done it my entire life. The best-case scenario, though, would be to live with two roommates and have a short-term rental in the basement. Less roommates and more profitable? Win-win!

Setting My Search Criteria

With that being said, I am an agent, so I set up my criteria to be a 1,900-plus-square-foot house with three-plus bedrooms and two-plus bathrooms. I know, I just said I was looking for a five-bedroom place—so why would I set my search criteria for three?

There is a high probability that a house with more than 2,000 square feet either has non-conforming bedrooms OR an unfinished basement, where bedrooms can be added. By either adding or conforming bedrooms, you will add significant value to your house and simultaneously gain the ability to increase total rent for the property.

With that search, I saw many properties pop up that I liked. I made high offers on two of them, and one was accepted.

The Deal & Numbers

On Aug. 7, 2019, I closed on my third house hack: a single family home in unincorporated Adams County. Yes, I don’t actually live in a city. I live in no-man’s land between Denver and Westminster, Colo. This is great, because there are less rules, little taxes, and I am still not far from the city or the mountains.

The house itself has six bedrooms and three bathrooms. The upstairs has three beds and two baths, while the basement can be a whole other unit—complete with three bedrooms, one bath, and its own separate laundry room, kitchen, and entrance through the garage.

Related: The 7 Drawbacks of House Hacking (& How to Overcome Them!)

Can you see where I am going with this?

My plan was to section off the top from the bottom by walling off a doorway that connects the upstairs to the downstairs and updating the entire basement to turn it into an AirBnb—all while renting the top out by the room. If you have already read the The House Hacking Strategy, then you will know that this is a hybrid strategy of “rent by the room” coupled with “luxury house hacking.”

The purchase price of the property was $380,000. I used a 5 percent down conventional loan. After closing costs, my total down payment was about $25,000.

Between the downstairs remodel, some electrical updating, and furnishing the place I was all-in for $30,000 in rehab expenses. So, my total initial expenses on the deal was $55,000.

• Purchase Price: $380,000
• Down Payment: $25,000
• Rehab: $30,000
• Total Initial Expenses: $55,000

Upstairs, I rented out the master bedroom for $900 and the other bedroom for $650. I am generating $1,550 on the top unit.

As we speak, the downstairs has just started renting out, so there is not sufficient data yet. However, I have a friend who has an Airbnb in her basement. It is a studio with a kitchenette in a similar location. She makes about $2,000 per month on this.

Even though mine is a three-bed, one-bath with a full kitchen and laundry, I will conservatively assume that I will make $2,000 per month on the Airbnb (same as her).

Here are what my numbers look like:

• Mortgage: $2,100
• Rental Income: $1,550
• Airbnb Income: $2,000
• TOTAL INCOME: $3,550
• Less Reserves: $400
• TOTAL CASH FLOW: $1,050
• Plus Rent Savings: $650
• TOTAL CASH FLOW & RENT SAVINGS = $1,700 

Once the Airbnb is finished and running, my total cash flow and rent savings on this property will total $1,700 A MONTH! That is $20,400 per year just in cash flow and rent savings.

According to the amortization schedule that my lender provided, I will have paid off about $8,000 in principal. I have not gotten the appraisal back yet on the property, but I suspect at least a $30,000 bump in property value based on the basement remodel.

Given the three wealth generators we talked about throughout the book, I expect my year-one return on this property to be:

$20,400 Cash Flow + 8,000 Loan Paydown + 30,000 Appreciation = $58,400 Net Worth Gain

Divide my total year one return by the initial money I put in, and you will see that my cash flow return on investment (CFROI) is 106 percent.

$58,400/$55,000 = 106% CFROI

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There you have it! Another deal where I will receive my full investment back in one year or less. Do you see how this is so repeatable?

My House Hack Portfolio

I am now in my third year house hacking and managing a portfolio of rent-by-the-room tenants has become more and more daunting. I do not want to be a property manager, so I have decided to hire one for my first two properties (the ones I do not live in). And yes, she does do rent by the room management.

After including property management for all three of my house hacks, here is what my portfolio looks like:

• 2017 House Hack: $475 of monthly cash flow
• 2018 House Hack: $350 of monthly cash flow
• 2019 House Hack: $700 of monthly cash flow
• TOTAL CASH FLOW MONTHLY: $1,525

Not too bad for three houses that have been hacked over the course of a little over two years!

And this assumes property management for all of the properties (even the one I live in), so it is 99 percent passive. I still need to “manage” the property manager, but over time, my work will become less and less. Now I am able to focus on bigger and better things, such as purchasing BRRRRs out of state, growing my real estate agent business, and enjoying life!

Financial Independence Has Been My Top Priority

As many of you likely know, I do not spend a lot of money. This is the main driver of how I hit “financial independence” in less than three years.

In a few short sentences, the formula is:

1. Make the most money you can.
2. Spend the least amount of money possible.
3. Invest the difference into cash-flowing assets.

It is very simple. If I can do it, so can you!

What questions can I answer for you about house hacking?

Ask me in the comment section below.