BiggerPockets Money Podcast

BiggerPockets Money Podcast 95: The House Hacking Strategy with Craig Curelop

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One of the most commonly asked questions in the BiggerPockets Forums is “How do I get started investing in real estate with no money?” Craig Curelop has the perfect answer to this question: house hacking!

Craig shares his own story of three house hacks—and counting! We dive into the numbers, look at what makes a good property to house hack, and even talk about the different ways to hack your housing.

Craig also shares how he’s dealt with people who didn’t understand what he was doing—including his family and most of his friends. He also discusses his biggest house hacking mistake: when not following his tenant screening protocol led to a terrible experience.

If you’re thinking about jumping into house hacking, this episode lays it all out.

Click here to listen on iTunes.

Listen to the Podcast Here

Read the Transcript Here

Scott: Welcome to the BiggerPockets Money Podcast show number 95, with Craig Curelop author of The House Hacking Strategy: How to Use Your Home to Achieve Financial Freedom, and a member of the staff here at biggerpockets.com.

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Craig: You definitely want to be in a living situation that you will enjoy, right? The whole current thing most people probably would not enjoy. I actually did enjoy it, believe it or not just because I got to meet a lot of people. It was an experience where I loved the experience.

Scott: It’s time for a new American dream, one that doesn’t involve working in a cubicle for 40 years, barely scraping by whether you’re looking to get your financial house in order, invest the money already have or discover new paths for wealth creation. You’re in the right place. This show is for anyone who has money or wants more. This is the BiggerPockets Money Podcast.
How’s it going, everybody? I’m Scott Trench and I’m here with my co-host Miss Mindy Jensen, agency at Mindy.

Mindy: Scott, I am super excited for today’s show because while I am the president of your fan club, I’m also the president of Craig’s fan club. He is doing some pretty amazing financial wizardry with this house hacking strategy that he’s mastered during his short time working here at BiggerPockets. Short time, it’s like two and a half years or something, but he’s just really crushing it. It’s exciting to see somebody who is… I know I make fun of you guys for being young, but you’re significantly younger than I am. It’s exciting to see somebody who is so young doing something so financially advantageous, taking the risks and making the sacrifices that you need to do to be a house hacker.
When I say risks and sacrifices, the risk is actually pretty minimal. The biggest risk is that you have more house than you need. The sacrifice is just you’re living with somebody else, but especially for somebody Craig’s age. He’s coming out of school where he was living with roommates. He’s just living with more roommates, and now those roommates are paying his mortgage.

Scott: I think from a risk perspective, Craig situation is the lowest risk could possibly get, right? He has tenants that covers mortgage, he’s not at risk long term of rents going up and that being a problem for him like every tenant is at risk for. He’s got help like every homeowner is that more of a risk because they don’t have tenants helping to pay down their mortgages, right? Craig has built several hundred thousand dollar personal net worth, he generates the thousands of dollars in passive income through his real estate investing activities. He’s got a diversified pool of tenants, right?
His risk, to your point is just so low with this, and this is the way to do it or a method that you use a listener can go and practically apply it in your market. Some of the themes and the principles that Craig is applying, the fact that he’s applying them so aggressively and so early on in his career. It’s guys like Craig who are going to have unlimited freedom. By the time they hit 30 years old, to go out and take on the world and go start a business go, whatever, maybe work for BiggerPockets forever. Whatever it is that Craig wants to do, he’ll be able to do because of what he’s applied in these past couple of years. You’ll listen to his story and hear the personal sacrifice that came along with it and you have to decide if it’s worth it or not. There’s a spectrum here, and I think Craig also outlines that really well.

Mindy: Yes, he does. I wanted to point out that this isn’t just a strategy for 30 year olds. As I mentioned later on in the show, I’ve considered this as well and it’s just another way to generate passive income. Craig shares the amount of money he’s generating from his three rental properties. We didn’t ask him how much he spends every month, but I bet this more than covers all of his spending.

Scott: Yeah. Craig is just a master at finding those points of leverage in his spending and his income and figure out a way to reduce his expenses to zero and maximize his income. He’s been doing that consistently and that’s-

Mindy: That’s how you kill it.

Scott: The guy is crushing it right now.

Mindy: Yeah, he is.

Scott: Should we bring him in?

Mindy: We should. Before we do let’s hear a note from today’s show sponsor.

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Mindy: Okay, huge thanks to the sponsor of today’s show. Craig Curelop, welcome back to the BiggerPockets Money Podcast. I’m so excited to talk to you today, how’s it going?

Craig: I’m so excited to talk to you too. It’s like I don’t get to talk to you every day.

Mindy: I know, that seems weird. I have to introduce the show the same way that I always do, but I actually work with you. Although, today I’m at home and you are in the office recording from where I normally record from.

Craig: This is true.

Mindy: Yes, I’m excited to bring you back because I think that… can I say that you are the world’s foremost expert on house hacking? Is that overselling it?

Scott: I think you can say whatever you want Mindy.

Mindy: Okay, Craig Curelop is the world’s foremost expert on house hacking. Even though, Brandon Turner made up this term. Craig, knows more than Brandon does about it. Because, he’s actually done it. Has Brandon done it? I guess maybe, but not to the extent that you have. Let’s get started Craig. Well, before we do that, I’m going to continue with my intro Craig first joined us or last joined us both I guess on episode 35 of the BiggerPockets Money Podcast. We already got his story, his money journey there. If you haven’t listened to that episode, you really need to because Craig did what nobody else has ever been able to do for me and that is properly explain how you can invest before you pay off your debt.
Until Craig came on to that show, I was like, “No, you should always pay off your debt.” Always, like the sky is blue. The grass is green, you pay off your debt before you start investing. Then Craig story really made sense how he was able to make the minimum payments on his debt while investing in real estate through what method Craig? Was that house hacking?

Craig: House hacking, you got it.

Mindy: House hacking. Craig, is it safe to say that you paid off $86,000 in debt because you house hacked?

Craig: House hacking was probably the number one driver in that, there were other things but house hacking was the number one driver for sure.

Scott: Just to continue blowing up Craig for a second here, like, very few people I think have studied this concept to the depth that which you’ve taken it and applied it consistently over a multi year period. Interview as many people as you have to try to get a wide range of strategies around it. Then you just making it work where other people may be thinking it can’t work here in Denver, Colorado, for example. I just want to give a big compliment in all the work and thought you put it into this, I think it’s going to help a lot of people rapidly build a lot of wealth, from your book.

Craig: Well, thank you, Scott. Yeah, I definitely have studied a lot and talk to a lot of people on the house hacking strategy. As you’ll see in the book, every chapter ends with a case study of everyone that I’ve studied in all different markets doing all different types of house hacking as well. There’s something out there for everybody.

Scott: Nice. Well, can you give us maybe a little, a quick… let’s do a two or three minute recap of your journey with house hacking, and then maybe an intro for those who are new to it and how they can think about approaching it here in end of 2019.

Craig: Yeah, sure. For my house hacking story started actually just a couple of months after I got hired at BiggerPockets. I got hired in April 2017 started my first house hack in June 2017, and that was the duplex that you probably heard my previous episode. Where I rented out the top, lived in the bottom and Airbnb, my bedroom on Airbnb. All of those savings allowed me to-

Scott: It’s where you lived behind the cardboard curtain.

Craig: That’s right. You’re not going to let me forget that.

Scott: Right. Just to make sure, yeah.

Craig: Yes. Well, it was a cardboard box with a curtain on the other side.

Scott: Here he is at $86,000 later.

Craig: Yeah. Basically, all that savings helped me be able to make my minimum payments on my student loan to the time and save up for my second house hack. Exactly one year later, I closed on my second house hack, and then rented out the first one full time. Did the second one, that one was a five bed, two bath, which I rented by the room, so a different strategy there. Then I save and save and save to them get my now third house hack pretty much a year later after that. It's a very repeatable strategy.

Mindy: Okay, let’s look at the numbers for your first house hack. What did you pay for it? What was your monthly payment all in principal interest, taxes, insurance? What did you rent out? What money did you bring in through your various renting?

Craig: Yeah, so the first property I purchased for 385, 385,000. My down payment, I did a three and a half percent down FHA loan, which was about 17 to $20,000 down. My monthly payment was just over 2000, interest rates were very low at that time. I was getting 1,750 for the top, and from Airbnb out my room at Airbnb, I was averaging about $1,100 per month. A little less in the winter, but a little more in summer. Over the course of the year it average, that's about 1100. What's that? 2,850 on a $22,000 mortgage, and I was living for free.

Scott: Makes it 100. Is it 22,000 a year or 2200 a month?

Craig: It was 2000 a month for the mortgage just over 2000.

Scott: Got it, okay. That’s awesome, you’re living for free. Paying down your mortgage, has the property appreciated now, a couple years later?

Craig: Yeah. I actually just got an appraisal and an appraise for about $80,000 higher than when I just purchased it two years.

Scott: Awesome. Do you have plans to refinance that property?

Craig: I'm actually taking hillock out on it. I don't plan to refinance it, yet. The only time I'll refinance it if I do indeed want to get another multifamily or I need to use that FHA loan again.

Scott: What are you going to do that hillock?

Craig: Right now is just reserves, I can use my money to then potentially purchase another investment here in Denver. That is not a house hack. My goal for next year is to obviously purchase another house hack, but in the meantime, also purchase a traditional rental as well.

Scott: This is awesome. I don’t want to go too far down this rabbit hole, but I’m very interested. Anyways, how would you describe your position on risk reward in relation to taking out hillock? You’re leveraging even more on this and pulling it out and holding it in cash as reserve and opportunity fund or whatever? How are you thinking through that from a risk reward perspective?

Craig: Well, I’m not actually trying down on the hillock until I actually have the opportunity.

Scott: Okay, sorry. I thought you’d pulled it out already?

Craig: No, no, no.

Scott: Okay, that make sense. Do you think that if you get to 20% equity in that property that you'll refinance out of your FHA loan?

Craig: Yeah, once it gets 20, 25% I'll refinance, it'll probably become an investor loan. I'll be able to remove the PMI, lower my monthly payment and then you have a whole lot more options with having FHA loan out again. I can then go ahead and do another multifamily property with a low amount down.

Mindy: Okay, we’re talking a lot about things that we all already know about. Let’s break this down a little bit more for people who are listening that may not be familiar with all these terms you’re throwing out there. PMI is Private Mortgage Insurance, what is your PMI monthly payment?

Craig: The PMI on that property is about $250.

Mindy: Okay.

Craig: Any property for the listeners there, any property that you don’t put at least 20 or 25% down on, you’re going to have to pay PMI. People always wonder is paying the PMI worth it? I say 100% is worth it. Right? This is the reason, it’s that because I pay an extra $250 a month in mortgage, right? I get to purchase a property for $60,000 less than if I didn’t have the PMI. How long would that take me to save up to $60,000 rather than just pay that $250? I save $250 more a month. I don’t even know what that math is, but it’s four time, a lot of money. It’s a lot of years before I can then purchase a house, just to sacrificing not paying PMI, especially if my renters are actually paying for me.

Mindy: That’s a really good point. PMI you said 20 or 25% down, it’s 20% down for an owner occupied property. If you don’t put 20% down, then you are paying PMI. I’ve heard a couple of different ways that people are doing PMI, one guy was able to buy his PMI, or pay it off at the beginning of the mortgage. It was something like $1,000 to pay it off. He’s like, “Yeah, I’m going to do that.” That’s four months of your PMI, I don’t know what his was. My friend Jake has what, $75 a month for PMI? If he didn’t do that, then he would have to pay capital gains taxes on stocks that he would sell to get the 20%. Don’t write off PMI automatically. I mean, if it’s really expensive, it might not be worth it. Definitely do the math, there’s a lot of different ways to figure that out.

Scott: Yeah. Basically, if I understand correctly, the strategy is you buy with three and a half percent down because you don’t have 25%, down which is close to $100,000 on this property. You have this great opportunity to earn a return, live for free, all that stuff. The property appreciates you paid on the mortgage when you approach that 20, 25%. For me, when I was house hacking, the holy grail was being able to refinance out of that PMI and reduce my mortgage payment very dramatically. Is that one of your goals that you’re going for?

Craig: It is not my primary goal, because I’m actually pretty comfortable with where my rents to my mortgage is right now. At this point, I think I would rather just have that hillock available and then use that leverage to buying a property rather than just have more equity in the current property that it’s in, because we talked a lot about return on equity, right? When your internal equity is not very high, when you’ve got 100,000 some odd dollars in the property itself.

Scott: Well, I think that’s a great way to approach it different and also awesome. Tell us about how you leverage that that first house hack into the second one.

Craig: Through those all those methods of saving, right? I wasn’t paying rent for that first month, and I was cash flowing about, afterwards, there’s maybe $500 over the mortgage. Net difference is about $1,000 more than I was saving prior to renting before. That, on top of my original savings I was saying before, from my job at BiggerPockets, and some other side hustles and stuff like that. I was able to save another 30, 40 grand and that next year, which I was able to leverage up into the second house hack, which was the five bed two bath house up in Thornton, about 10 miles north of Denver. This strategy, I did the rent by the room where I lived in my room, I had my own room with doors and walls and all that good stuff and just had four roommates.

Mindy: What a unique experience for you.

Craig: I know.

Mindy: Let’s look at this property, then what did you buy it for? What did it rent out at, et cetera?

Craig: This second one I bought for 343,000, this time I did a 5% down conventional mortgage. With this one, you’re actually… I was allowed to put 5% down because it was a single family. I don’t think you’re able to do this with multifamily yet, but maybe at some point. This one I put down, it ends up being about $20,000 for the down payment and I ended up putting $10,000 down and repairs to add a fifth bedroom and just do some small things here and there. I ended up renting out all of the rooms for 3,100 and my mortgage payment was 2000.

Scott: This is even better than the first place in a lot of ways. Essentially, this premise is the ability to rent by the room, right? You’re not allowed to do that in the city of Denver. You can tell us a little bit how you research and found out where the areas were that allowed this and then why you chose this location.

Craig: Yeah. Denver County, there’s occupancy laws, you’re not allowed to have three unrelated members living in the same home. Now people do it, and they don’t get caught. It’s not like a super enforce law. Again, it just puts you at the risk of being caught if it ever does happen. I decided to not take that risk and move up to Adams County, which is where Thornton is in. It’s just outside of Denver and there’s no lows on that there. I have five unrelated people living in the house and it is perfectly legal. You just go about researching it by, honestly, I just did it by networking and going to meetups is really how I found all that out.

Mindy: Google is a really good search engine, I don’t know if you’ve heard of it.

Craig: No, I’ve never heard of it.

Mindy: Yeah. It’s a small thing internet startup. That’s really important to consider is the occupancy laws for the city that you’re looking at buying a property. Craig has a five bedroom house, I really love that you bought a five bedroom house because that’s a weird house. That is probably going to take you a little while to sell when you go to sell it but why would you sell it? Because it’s cranking out cash at $3100 a month was that with you living there or without you living there?

Craig: That’s with me living there. When I moved out, I add another $700 on that.

Mindy: That’s $3800 on a $2,000 a month mortgage payment. I’m sorry, Craig, you can’t make money in the Denver market, clearly you’re lying.

Craig: It’s true.

Scott: What did you do next?

Craig: Then, that basically just managing two properties for that whole year, and again, continue to say continue to be frugal. A year later to no surprise, bought my third house hack. This one is little bit more recent, this one I just closed on in August of 2019. This one there was a total of six beds, three baths. This one I did a hybrid of my last two strategies. In this property, it’s basically like a split level almost. There’s a separate entrance that goes right downstairs to the garage, and the downstairs has three beds, one bath, and a kitchen. I decided to wall off where the upstairs meets the downstairs and redo the entire basement. So that I could have ran to the bottom out on Airbnb, and I can rent the top out room by room. Now I live in a three bed two bath with two other roommates, and I rent out the bottom on Airbnb.

Scott: What’s the profile of this investment look like from purchase price and rents, expenses, all that good stuff?

Craig: Yeah. The purchase price was 380, I bought it for 380. The mortgage on this one’s a little bit more, it’s like just over 2100. For the top two rooms I get a total of 1,550, 900 for the master and 650 for just the regular bedroom. The bottom I am just putting on Airbnb now, but I’ve got friends actually here at BiggerPockets who have similar properties. Actually, properties that are actually smaller than mine that are Airbnb out and they make about $2,000 a month for a studio basement. With my three bed one bath with a full kitchen, I’m going to conservatively estimate that I’ll make $2,000 a month on that. That’ll look like 3550 on a $2100 mortgage with me living there.

Scott: Outstanding. How do you expect to manage these over time? Are you going to self manage forever or what’s that look like? It seems a lot of work, if I’m thinking through this to manage all your Airbnb and rentals.

Craig: It is for sure, a lot of work, and I actually found a property manager that does rent by the room. That is the quick answer, I guess. I just signed her on actually, this week. Hopefully, she does well and if that works, then my investment strategy has changed. I’ll continue to invest in single properties, single family houses here in Denver.

Mindy: How did you find a property manager that manages the rent by the room? I want to look into this rent by the room strategy because I know, Linda Weigand on show I think 240 on the real estate podcast or 242. She does rent by the room and she’s also making money in a place where you can’t really make money because property prices have gone up so much, where rent has not kept pace with the property prices. How do you find somebody who rents by the rooms? Do you just ask them?

Craig: As a property manager?

Mindy: As property manager.

Craig: Yeah. Someone actually just reached out to me and said, “Hey, is there any way I can help you out?” I said, “Yeah, find me a rent by the room property manager.” They just call them five or 10 people and then he introduced me and it worked out. Yeah, it was great.

Scott: Was this an Airbnb tenant?

Craig: No, it was not Airbnb.

Scott: Craig, once found love through his business here, right?

Craig: Love is a strong word by that, we’ll say yes, that’s an inside joke between Scott and I.

Mindy: Okay.

Scott: Fair enough. It sounds like you have a wonderful approach here that you can sustain and it’s been building a great return on equity, which I think is a great metric. Look it up if you’re interested in learning more about that, that’s I think the way to underwrite these properties over time. What would you say to someone who’s listening who’s maybe not willing to go to some of the links that you’ve gone to, or who can respect the choices you’re making, but say, “You know what, I’m not going to go and buy a five bedroom house or rent out four other of those rooms. I may not live on a cardboard or be as creative with this six bed, three bath place.” What would you say to somebody who is looking to house hack, but once is maybe willing to accept a little bit less of some of these tremendous numbers that you’re putting up in exchange for some of those comforts?

Craig: Yeah. We talked about on the BiggerPockets Real Estate Podcast a few weeks ago, the whole idea of sacrificing comfortability and profitability. The idea is that as you move along the spectrum towards profitability, you get less comfortable. As with the other way you get more comfortable but less profitable. I would suggest everyone to go as far as you can along the spectrum towards profitability as you can, especially at first. Then as you continue to house hack, you become richer, you get to have more options, you become more flexible, you can scale back and move down that spectrum towards the comfortability section until you’re at the point where you’re 100% comfortable.

Scott: Yeah. I think there’s a lot of good stuff in there. I think when it comes to house hacking, one of the big advantages as I see it is your ability to put down such a low down payment, and have such extreme leverage against that, right? Be able to de risk it by living in the property self managing fixing all those problems. If you have 500 or 1000 or a million dollars in net worth, getting a great return on 10,000 or $15,000 down isn’t really that important, you could probably pursue the same approach you’re doing right now with just regular rental property investment. Is that what you’re trying to say with that?

Craig: I don’t think there’s a better way to deploy $20,000 and get 100% return on that than house hacking, right? Even if you’re a millionaire, it makes sense, I think because still, you’re going to get a better return on that $20,000. Now, if you think 100% plus return on a house hack is just not worth it to you, you’ve got a million dollar you can do what you want. You see this as a way, how comfortable are you willing to be versus how comfortable you’re not willing to be?

Scott: The point I’m trying to make is you’re saying, “Hey, you really should go as far as you can along the path to profitability at first because the stakes are so high and it’s such a good return.” Is what I’m gathering from your argument there. I think that’s absolutely right, when you’re starting out it’s just so powerful this mechanism, this tool, house hacking to move you towards financial dependence, but there’s a light at the end of the tunnel, right? You don’t always have to get a 200% return on your $20,000, and you can get the big nice house downstream or move down that spectrum over time. Is that right?

Craig: Of course. Yeah. I don’t think anyone is doing this so that they can just house hack forever, right? The whole thing is house hack for a few years, so you have all the options later and you can live the life that you want later.

Scott: What’s your dream house Craig?

Craig: Well, there’s definitely going to be a curtain involved.

Scott: 10 bedrooms, I know.

Craig: 10 bedrooms, four curtains a lot of bunk beds.

Mindy: Wait, his dream House or his dream house hack?

Scott: His dream house, what’s your long term desired living situation that your house hacking for?

Craig: I don’t really care. I just want to become surreal, honestly whoever I’m with the time is whatever makes them happy probably. A place live is never been the utmost important to me, I’d like to have a good location. I like to have a nice clean house but other than that, it’s just make the people around me happy and then I’ll be happy I’m sure.

Scott: Got it.

Mindy: Okay, let’s say somebody’s listening and they want to house hack, they think this is a great idea. What property makes for a good house hack and what are some things they should watch out for that may not make it such a great property to house hack?

Craig: I think the first thing you want to do is figure out what strategy you want to do. If you’re in a market where you can do a duplex, triplex or quad and that’s the house hack you want to do, then find a duplex, triplex or quad. Things you want to look for is location, proximity to public transit if you’re in a city. If you’re doing a single family, I like to look for the amount of beds and baths per dollar. Hopefully, you want the least amount of dollars for the most amount of beds and baths because you can always fix them up and make them look nice. If you can get a lot of beds and baths and or if you can get a house with a lot of square footage, but maybe only three beds and two baths, you can maybe add a couple of bedrooms. Figure out ways to add value to those two property that you can probably potentially increase the value, get more for rent, but still keep that mortgage payment about the same.

Scott: Got it? What’s an example? I’m sorry, I’m harping on this point. What’s an example of a house hack that you’ve heard of or come across that is more luxurious? Because I think a lot of people are going to have this challenge, right? I know we’ve talked about this, but where they don’t want to live the way I did it my first house hack, right? Or the way you lived in your first house hacks, right?

Mindy: Nobody wants to live the way he lived.

Scott: Yeah. What’s an alternative for someone who maybe has a significant other, who they understand there’s financial benefits. What’s an approach that you can say that, “Hey, this is how you would make a case for this to your spouse while still retaining some element of privacy in your living conditions.”

Craig: Yeah. That’s moving towards a comfortability and of that house hacking spectrum that we talked about. I think Ben Leybovich called it at the luxurious house hack, right? That whole idea is where you have the house of your dreams, your forever home, but maybe you have an additional dwelling unit in the back mother-in-law in the basement, or something like that. Where you can just Airbnb that out or even do a long term rental, which will maybe make you 1000, 1500 dollars a month. It may not entirely cover your mortgage, but it will certainly help you pay your mortgage. Who doesn’t want $1,000 a month?

Scott: Awesome. Love it. Maybe can you walk through how you would think about that as a stepping stone for maybe as a small family. What are some more examples of that maybe?

Craig: Another example would be, obviously the single family house is probably the most popular in terms of what a family would want to do, right? If you want to take it a step back, maybe you get a triplex, right? A triple decker type thing like top three down, and maybe you live on the top, so you don’t have any noise above you, and you rent out the bottom two. It’s you and your family up top, you get the nice view of the… like what Brandon is doing, right? Brandon has got a triplex in Hawaii. He lives in the top with his family, and he rents out the bottom two. That’s another way to do it.

Scott: Yep, love it.

Mindy: What are some cautionary tales to tell people before they jumped into this with both feet? Do you know anybody who’s had a bad experience, Craig?

Craig: Yes. I know myself who has had a bad experience, which we can get into in a minute. The one thing I want to warn everybody with and Scott, I think you said this really good about a year ago. It was that every point in this journey, you are never going to be like your peers. Basically, what you said was the first year you’re going to look like a poor man, right? Living behind the curtain or whatever it is, and people going to ask you, why are you doing this? You make good money? Why don’t you sacrifice a little? Or why don’t you treat yourself a little bit?
Then you realize no, then you buy a second property. How many people do you know that can buy two properties in two years that just out of college or whatever it is? You start to build a lot of wealth, and then a lot of wealth, and then a lot of wealth. Then all of a sudden, you’ve got tens of thousands, to hundreds of thousands of dollars where you can start investing even more. You hit financial independence, and you become financially dependent in your late ’20s, early ’30s, or basically five to 10 years from the start point. You just never liked anybody in that entire journey. Be prepared to be different if you decide to embark on this house hacking journey.

Mindy: Have you had a lot of pushback from friends?

Craig: For the first year, I was getting a lot of flak for sure. I mean, just in the office I was getting a lot of flak.

Scott: He still get a lot of flak because of the curtain.

Craig: Yeah. The curtain, the cardboard box I was definitely like a very, very-

Scott: Do you have a picture of this by the way?

Craig: I do a picture of the curtain, I don’t have a picture behind the curtain. That’s for my eyes only.

Scott: We’ll post a picture of the curtain on the show notes, everyone.

Mindy: In the office I always felt that was good natured teasing, as opposed to ridicule.

Craig: Yeah. Well, there’s that. Then at first my parents didn’t get what I was doing, my grandparents didn’t get what I was doing. I would get some flak from them as well, and basically, we just have to push back and be like, “The numbers work, I get it, just trust me, I’m not going to live like this forever. It’s just a stepping stone.” I think now a couple years later, they understand where I was going with this. You just have to stick to your guns know that you’re going to be different. You’re probably… especially I’m very lucky that I get to work at BiggerPockets, and I’m surrounded by people that understand, but most people are not like that. You have to just be ready to take some flak and take strides with it.

Scott: I think that, that’s the trade off as you went as far along that line to profitability as you could. In two and a half years I bet, I don’t know what the numbers specifics are at this point, you probably don’t even know because you’ve never had to give an upraise. I bet it’s close to $250,000 of wealth that you’ve created through these three decisions to this point, right? It’s $100,000 a year, and really tax advantage wealth that you’ve generated, and a lot of tremendous power that comes with it. You know what? Yeah, we gave you a little grief about the curtain, but you can have to respect the heck out of that set of decisions and how well you’ve executed them, and the lifetime of benefit that you going to receive from having made them.

Craig: Yeah. If you live behind the curtain for one year, and you get 40 years of your life back. I think I’ll take that trade any day.

Scott: That’s right.

Mindy: Wow.

Scott: All right, I hope you’re enjoying the show. We’ll be right back after a word from today’s show sponsor.

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Mindy: Okay, let’s talk about some not so exciting experiences, Craig.

Craig: You’re making me come back that.

Mindy: Did you think I was going to forget that question? I’m sorry that you went through it, but I really want you to share this so other people can learn from your mistakes. One of the things that I heard, we all just got back from the BiggerPocket’s convention, which was held in Nashville. We’re going to have one next year too, right, Scott?

Scott: Yes. Well, we’re going to reconvene, regroup and plan another one. It was awesome. The conference was amazing.

Mindy: The conference was amazing. We’re going to have another one. One of the things that I heard from so many people there is, I want to hear the negative stories. It’s so easy to hear somebody say, “Hey, I made a million dollars, look at me.” What really teaches you is when you have it, like, “Oh my God, I can’t believe I have to go through this moment.” Which, Craig did just a little while ago. Craig, what happened?

Craig: Yes. It was a very Methy situation.

Mindy: My God, I forgot that it’s you guys together. Craig and Scott, sit in the office and go back and forth with these awful dad jokes and puns, and it’s just my worst nightmare come true. Tell me about your Methy situations, Craig.

Craig: What happened was as I was renting out my third property by the room, I was having people come in to look at the rooms, and I signed two leases very quickly, but I still had other people coming in and take a look. I had to lease to sign and two other people came in, and they said, “Well, can we check out the downstairs?” I said, “Okay, yeah. Sure, why not?” I showed them the downstairs and I told them in advance that this would be a construction zone and you have to come upstairs, use the kitchen, use a laundry, all that stuff and they seemed to be perfectly okay with it. I got greedy, I got overconfident, and I got overconfident, greedy and lazy. Basically I just said, “Okay, we’ll let you end of month to month lease.” Because I always intended to Airbnb it and I figured out what the heck could happen. What’s the worst going to happen on a month to month lease? I just signed the lease, do the background checks, didn’t do any of this stuff.
They move in and on the first day they move in the contractors start renovating the basement to get prepared for the Airbnb. The contractor is down the hallway ripping up carpet when they smell something that they had never smelt before, and it wasn't cigarettes. It wasn't marijuana. They didn't know what it was. I went and I googled the woman's name who came into the house. You should do this before you sign a lease, by the way.

Mindy: Yes.

Craig: It turns out that she was on our county’s most wanted list for hard drugs. I went about calling the police to try to get this woman out of my house, and they were no help at all. They basically told me that, “You’re allowed to smoke meth in your own home. If you have a lease signed.” It’s their private residence. I was like, “What?”

Scott: What?

Craig: Yeah. It just blew my mind, and I was like, “I couldn’t drink a beer at 20 years old in my basement, but I could smoke Meth?” That blew my mind. They weren’t doing anything to help me. Basically, I just did the whole cash risky thing where I said, “Hey, you guys have to be out by the end of the week. I’ll give you all your security deposit, all the rent that you paid and $500 just get out.” There was two people down there. They took the offer, they left and it’s off my plate now. It was a stressful, a week and a half there for sure.

Mindy: You got off really easy because I mean, did they stop smoking Meth in your house?

Craig: Yeah. Well, they left.

Mindy: They were there for the rest of the week?

Craig: I don’t know. I don’t know, I didn’t actually bring the Meth situation up to them. Because, I don’t know what many people will do. I just didn’t put myself in a weird situation where it got violent or anything. They didn’t seem violent, but I was scared.

Scott: One of the things that I was hoping to do with this podcast was to encourage the listeners to house hack, right? Inspire them and say, “Look, there’s a great way to go about things here.” This Meth story is, I think, pretty scary to anyone considering this. It’s one thing to have a Meth problem in a rental property potentially, it’s quite another to have it in your house, right? How do you, again, as an individual prevent that from happening ever, right? What are some of the steps that you could take to make sure that that is not a possibility in a place that you’re trying to house hack for yourself?

Mindy: I’ve got this question, I’ve got this answer. Step number one, background checks. Step number two, Google their name. Craig, did you background check the rest of the people in the house?

Craig: Yes, I did.

Mindy: Okay.

Craig: Because I knew I was going to sign them for long term. Again, even if it’s month to month, after you get your first deal, you’re probably going to do really well, right? Because you’re not very confident you’re going to make sure all your I’s are dotted, your T’s are crossed and all that. Then you start to get your second, third deal and you just become overly confident and cocky about it, which I truly did. I got served a piece of humble pie there, and always, always, always just screen your tenants, don’t take any shortcuts. That’s the lesson you got to get out of this is don’t be like me in that situation. Screen your tenants, don’t take shortcuts even on month to month leases. Even if they feel like they’re your friend or whatever. Just go through the process and treat your rental business, your house hacking business, like a business and follow the processes.

Scott: Yeah. I feel that’s good. I have not had this situation happen, because every one of my tenants that comes through goes through my credit criminal background check, right? I would be willing to bet that this person didn’t have a 750 credit score, in addition to the criminal history that they might have had and probably didn’t have three rate references from prior landlords and an employer who you could call to verify their income at certain levels. One of those parts of that process, and of course, the criminal background check would have enlightened you to this behavior, is that right?

Craig: That is 100% right.

Scott: Your odds are probably, I would say that if you follow a good process and research it and include some of the things that just mentioned there, you’re highly unlikely to have a situation like that. As unlikely as you would much more unlikely to have that situation happen than if you were to for example go and try to find a roommate by interviewing folks as a tenant.

Craig: That’s exactly right. Scott, again, filled with wisdom. Listen to Scott, yes, that is 100% what you need to do is just follow the process.

Scott: Yes. I’m really just, again, a believer in the power of this concept of house hacking and as to your point, the spectrum of possibilities how this can apply to anyone. From someone who’s starting out and willing to live in a dumpy place like mine or not dumpy, but behind the curtain like you to somebody who’s got a family is like, “Hey, I want to live in a modestly, pretty nice duplex. That’s a set of town homes and runs out the other ones. You know what, I’m not going to get the 2% rule in Denver that Craig’s getting, but I’m going to get a heavily subsidized mortgage and live. Maybe if my mortgage is three grand, I’m going to pay 2500 of that through the house hack and bring a little bit left to the table and still live for a much lower cost and I could the alternative generate a great return that way.” I just think there’s so many ways to avoid the problems that you just experienced or offset some of the pay a little bit more or even a little bit less of return in order to get many of the advantages, if not all of this concept and apply it to your life.

Craig: That’s right. All this stuff too is in the book. I say this too, I just literally did not follow my own advice there. Again, it’s just one of those things that I got greedy and lazy, so don’t get greedy and lazy.

Mindy: Hey Craig, what’s that book called again?

Craig: It’s called The House Hacking Strategy, which is the probably backwards there.

Mindy: No, it’s forwards. No, I agree with Scott, that this is still a really great way to generate wealth. It’s a great way to get invested or to start investing in real estate, when you’re just starting out when you’re younger, even when you’re older. You’re young, so we’ll get to that. I do get a lot of people asking I mean, that’s the whole reason we have this podcast in the first place. People are asking how do I get started investing in real estate with no money and bad credit? Well, let’s fix your bad credit. Let’s fix your no money, then let’s get you into a house hack, so you can get started investing in real estate. You didn’t stay in that first property, you moved on a year later. You didn’t stay in that second property, you moved on a year later. Now you’ve got this like rental empire, I don’t have three rental properties in my current area. It’s a great way to buy a property.
The owner occupant loan, we glossed over this. The owner occupant loan comes with lower down payment requirements. I mean, as low as 3.5% with an FHA, I think 3 or 5% with a conventional loan. That's a great way to get into a property. As an investor, you have to put 25% down the bank doesn't even want to talk to you if you don't have 25% to put down. Yes, there's people that can get lower than that, but they've been doing it forever and blah, blah, blah. This is a really great way to get started. Like Scott said, even if you want a house hack, where it's not going to completely cover your mortgage, every dollar that doesn't come out of your pocket is a dollar that you can save.

Craig: That’s right, totally right. I just think it’s a great way to an introduction into real estate investing as well. Talk to 10 real estate investors, I guarantee you nine of them started house hacking, especially if you’re here on BiggerPockets.

Mindy: I started house hacking before it was created, before you guys called it house hacking. I called it having a roommate and that was pretty nice. I do think though, that it is important to bring up the negative aspect. You work at BiggerPockets, you literally talk real estate all day every day, and you still had something happen to you because you got lazy. Pointing out that mistakes happen even to perfect people like Craig is just another way to learn. He’s shaking his head. No, you’re perfect Craig.

Craig: Thanks.

Scott: I point I’d venture to guess that the fact that you had at that point five, six, seven tenants between those first two properties alone. Then you had, you have three, four new tenants in the new property if you include yourself, right? That’s a lot of tenants, given the amount of unit, and the amount of property that you’ve purchased, right? The way you constructed your house hacking business is a lot more complicated than what many investors might experience if they buy two duplexes, right? Like I bought them, I started out buying two duplexes for the similar asset value to your portfolio. That gave me three tenants. It’s a completely different structure, and the odds of having a problem there get dramatically reduced when you have that little bit less of a scope there.

Craig: Yeah, just with the numbers. I know I’ve had, all of our tenants have been great, right? It’s like, “I’m sure everyone’s this way.” Again, it’s just overly confident based on history and you lose. There’s a reason why the Patriots lost to Super Bowl 07.

Scott: One of the other things that I think is really important when it comes to house hacking is I think that there’s value in liking your home and wanting to live there, right? Because one is where you’re living because you might as well be happy, as happy as you can as far along that comfortability side of the spectrum without impacting your profitability as you can get. Two, if market conditions were to change or, something were to happen and your income was cut at work or whatever. The fact that you’re able to live in a property, I think de risks the situation to a certain extent. What are some of the considerations that you have on that front, when you think about your next house hack, or what advice would you give to somebody going into it like that?

Craig: Yeah. You definitely want to be in a living situation that you will enjoy. The whole current thing most people probably would not enjoy. I actually did enjoy it, believe it or not, just because I got to meet a lot of people and it was an experience where I love the experience. Now I live in a more of a house so it’s a much more homey place. I’ve got like a living room. I’ve got a kitchen. I’ve got a backyard. All these things it’s just that I have roommates, and they’re hardly ever home or whatever.

Scott: Mindy is just ready, that I quote.

Craig: Gosh.

Scott: “I enjoyed living behind the curtain, because it was an experience.” Craig Curelop, BiggerPockets Money Podcast, Show 95. All right, keep going Craig.

Craig: Yeah. It was an experience. I did love it. The last few places I’ve lived I’ve really enjoyed because, I had my own room. I don’t mind having roommates, I actually don’t like living alone, just because I get lonely, I guess. Yeah, it’s comfortable. I like that, and I’ll continue to do it this way until my life changes in some other direction.

Mindy: I have to say that I was inspired to consider house hacking in my next property. By having unfinished basement I can make it into a bedroom in the basement, and we’re going to put the bathroom down there too. I have friends who are transient is not the right word, but how would you describe people that are like transit.

Craig: Nomadic.

Mindy: Nomadic. I have friends who are nomadic and need a place to stay for a short amount of time. Now I was considering doing it just to generate extra income because why not? I’ve got space that I don’t need, I would like money instead.

Scott: Well, before we get to the famous four here, what are some of the other items you want to leave us with related to the strategy of house hacking, Craig?

Craig: I just think you have to… though the first house hack is going to be a slog, right? The first one you get in, you put down the largest investment you ever made. If you’re not buying a brand new house hack, you’re going to end up, “This is broken, this is broken, this is broken.” You find yourself fixing things for the first few months, and you just feel like you’re never going to get ahead. Once you get it settled after the first four or five months, you start to see the rent savings and everything come in. You start to really see your savings pile up after like 6, 7, 8 months, and then you all of a sudden are able to buy the second one. When you buy the second one is really when you start to see the power of it and you just going to see more and more after the third, fourth and fifth. You just have to push through that first one and don’t be afraid to just take action actually get that first.
Another thing is that I just see a lot of people being really scared and trying to find a home run deals on these house hacks. Every single house hack that I've purchased, I have purchased it basically at asking price. For the reason that is, is I would rather just get in and start saving on rent and start having another property that is going to appreciate. That I can cash flow, that I can pay the loan down on, that I can get the tax benefits from, than try to find this home run deal that's $20,000 under asking because within two months, I'm $20,000 up in net worth game.

Scott: I love both of those. I can honestly relate really directly with your first comment about how it’s a slog for the first couple of months. When I bought my first house hack, we closed around Thanksgiving and that weekend I had to go and move. It was cold. It was like dark. I had to do it all in one day because time things poorly. I dumped all my stuff in, set up my bed and then I woke up the next morning, and I realized that a very critical element of housing was missing from my life, which is blinds and people could just see your house without that. Every day for the first couple of weeks, this might be just because I was completely naive, like a four year old who knew nothing about the world.
These things came together slowly, and it was a little rough for those first couple of months. I installed blinds, painted and stained cabinets, fix things up, I didn’t have a tenant in there yet because it was vacant. Then once I got the tenant settled, and we got the place settled I began reaping those benefits that Craig started talking about. It ended up being an enormously powerful investment for me that’s built multiple, six figures in wealth through cash flow and appreciation over the last five years.

Craig: Yeah. I wanted to ask you actually, you bought that first house in 2014, right? How does that look for you now? Where would you buy it for and what’s the value there?

Scott: Yeah. I bought it for 240, and I believe that it’s probably in the ballpark of $500,000 between 480 and 520 somewhere in that range, where to get it reappraised today. It produces a great cash flow at rents for about 2600. I think I’m a little below market as well with that, and the mortgage is about 1500 bucks.

Craig: Well, and those are good tenants. Yeah, we’ve got good long term tenants, no vacancy in the last three years.

Scott: Nice.

Craig: Again, the powerhouse second, right?

Scott: Yep, absolutely. It’s been a really powerful thing for me. Yes, little lonely and a little depressing for this first couple of months, especially when there’s no tenant in there. Then after the races after that.

Craig: Yeah.

Mindy: I’m going to bring up a different thing. I have bought and sold more houses than you guys have. Simply because I’m as old as both of you combined, and I’ve been investing forever. When you buy a house, something breaks, something always breaks. If you’re not house hacking, you’re still going to be fixing stuff when you move in. Really what breaks is inversely proportional to how much money you have in your bank account, or how easily you can weather the fix. If you buy a house and you spend every last dime on that Murphy’s Law 100% rules real estate, and you’re going to need a new furnace, you’re going to need an air conditioner, depending on what part of the world you’re in.
Your water heater breaks in the middle of the night, yada, yada, yada. If you have a good, comfortable position, your salary allows you to weather a big purchase like that. You’ve got a nice bank account, you’re going to get like, “I need a new light switch.” Or some random weird thing like that. I just want to point out that you’re always going to have things that need to be fixed when you buy a house, it’s just what happens. Having a house hack, I mean, if you’re going to buy rental property, or you’re going to buy real estate anyway, make money off of it.

Craig: Yeah, for sure. I mean, you always want to have some reserves to right I don’t recommend spending the last dime on a down payment. I would say you want to have at least probably $10,000 after the down payment just for when things go wrong. We just got our first snow here in Denver a couple days ago and that night I realized my furnace blew, we didn’t have a furnace. Luckily, I’ve got $5,000 that I can go out and do the furnace and reserves like that was very important.

Scott: Not luckily.

Mindy: Smartly.

Craig: Smartly, yeah.

Mindy: That not a word but smartly.

Craig: Smartly, I had $5,000 that I could… it wasn’t really a huge deal and now I’ve got a furnace that will last me likely for 20 to 30 years. I’m not upset about that. Well, I find it’s really funny and Scott I don’t know if you’re the same way and Mindy. It is like I have like a really hard time buying $20 pair of jeans, but I have no problem spending $3,000 on something for my house.

Mindy: Yeah. I just bought another live in flip, and I’m about to spend approximately $100,000 on it over the next year fixing up a new everything. Yeah, I can totally do that, but I would never spend $20 on jeans they’re $5 at the Goodwill, Craig.

Craig: Yeah, exactly. All your car is about $100,000, right?

Mindy: No, I don’t have that anymore. I sold it to buy the house.

Craig: That’s right.

Scott: I want to say like the Costco jeans are between 12 and $20. I’ll just pick up a pair at Costco. I might spend $20 on a pair of jeans once.

Mindy: Well, Scott not all of us are CEO.

Craig: You’re almost a rich guy.

Mindy: Some of us have to pinch pennies. I want to know about your reserves, Craig. Scott on episode 2 talked about his reserves. When he bought his first property, he had $10,000 in reserves. When he bought his next property, he put another $10,000 into the reserve pot. What was your reserves for your first property? Did you add to that with the second and third property?

Scott: I’ll say real quick, I was not comfortable until I was at 15 in reserves in my first property. I was not yeah, but going go ahead.

Craig: For that first one, I think I still had about 20,000 in the bank after down payment. That was just because I was done. The second one, I probably had about 30. I probably did the thing where it’s like $20,000 is the base and then $10,000 for any incremental property after that. That’s just what makes me feel comfortable. People would probably say that I’m very conservative in that way.

Mindy: No, I like those numbers. I like those numbers a lot, because let’s use $5,000 as a ballpark figure, your roof is probably going to be around $5,000, your air conditioner is like around $5,000. Three to $5,000, furnace three to $5,000.

Scott: Craig doesn’t have air conditioning.

Mindy: No. Craig, doesn’t have air conditioning. It’s about $5,000 to get a new roof, it’s three to $5,000 for the air conditioner, three to $5,000 for the furnace. I know somebody who just paid $3,000 to get a water heater. It’s 800 bucks, if you install it yourself. It’s not that hard to install, although they are pretty heavy. Your furnace isn’t going to break at the same time your air conditioner breaks, at the same time you need a new roof, at the same time you need a new water heater, but one property could have a new furnace. It need a new furnace and another property could need a roof and another property has a water heater all at the same time. Being able to comfortably absorb those costs is just so key.
I know somebody who had a rental property, the furnace and the water heater blew in the same year. Not even at the same time, but in the same year and they had a hard time financing that. They had to sell the property because they couldn’t afford for something else to go wrong. Don’t sell it now, everything is new. I just want to reiterate that having adequate reserves even if you think that’s too much, I hope you never touched that $20,000. I hope all the rent that comes in covers every bill and then you just have $20,000 sitting around. I also know that you could weather that storm, even if you didn’t, because you have a good salary, and you are not a big spender.

Craig: That’s right.

Mindy: Okay, it is now time for the famous four. These are the same five questions we ask all of our guests, four questions in one command. Craig, what is your favorite finance book? You can’t say yours? No, bro. Nothing Scott either.

Craig: I was just about.

Scott: I was asking for a race.

Mindy: I like that for life.

Craig: My favorite finance book it’s probably, it’s got to be the Millionaire Next Door. I mean, I just think that is just like the fundamental frugality. It just gives you so many options being frugal, so the Millionaire Next Door.

Mindy: That’s a really great book.

Scott: Awesome. What was your biggest house hacking mistake?

Craig: We chatted about that already, definitely the Methy situation.

Scott: Just give us a second mistake.

Craig: Second mistake.

Mindy: It looks like I don’t make mistakes.

Craig: Yeah. Honestly, there hasn’t really been anything that’s been like crazy bad.

Scott: It’s fair enough. Just not following your tenant screening protocol you already had in place.

Craig: Yeah. I guess, really for pulling teeth fell. I guess, it was allowing a dog upstairs when I was living downstairs in that duplex because the dog would run around at night and bark at night and it would just drive me nuts of all the noise. That is, I guess a mistake that I made but again, it didn’t come back to no pun intended bite me or anything.

Mindy: There’s a pun intended, I know you.

Craig: Definitely.

Scott: A terrible joke.

Mindy: God, really? Stop.

Craig: Oh my dog.

Mindy: Just finish it up yourself Scott, I’m not even going to talk to you anymore. I’m taking off my headphones. What is your best piece of advice for people who are just starting out? Since we’re talking about the house hacking book for people who are just starting out house hacking, besides screen your tenants?

Craig: I love it, just screen your tenants. The biggest piece of advice of starting out is just don’t be afraid to jump in and do it. Again, the quicker you get into your first house hack, the quicker you can get your second, the third, the fourth and the quicker you’re starting your journey towards financial independence. That timer does not start until you close on property number one. Again, don’t worry about getting a home run deal on your first one, just get the first house hack it will pay you many dividends.

Scott: Do you have any more of these really rough dog jokes?

Craig: I don’t have it. I probably have some more dog jokes, let me just pause for one second.

Scott: Nice.

Craig: Okay, what’s brown and sticky?

Mindy: Stick.

Craig: Stick, yay. That was my favorite.

Scott: All right, that was pretty quick.

Mindy: That’s not even a dog joke.

Craig: I know. Well, there you go. What do dog eat that are brown and sticky?

Mindy: Dog food.

Scott: Okay. Let’s move on to, where can people find out more about you, Craig?

Craig: You can find the best places on Instagram, I’m @thefiguy. You can also find me on BiggerPockets and that is probably the best two ways, or you can pick up the book at www.biggerpockets.com/househacking.

Scott: Well, thank you very much. This has been a lot of great information and I think everybody should consider how house hack could potentially change their lives. Figure out as far as they’re willing to go along that spectrum that you outlined on the profitability, comfortability side at least for a year or two. Because like you’ve demonstrated with your career and work and what you said on this podcast is just an enormously powerful tool that you can leverage to move toward financial freedom very quickly.

Craig: That’s right.

Mindy: Okay, awesome. Thanks, Craig for stopping by.

Craig: All right. Thanks, Mindy. Thanks, Scott.

Scott: All right, that was Craig Curelop from biggerpockets.com and right over there. What do you think Mindy?

Mindy: The author of The House Hacking Strategy. You have to name the book Scott.

Scott: Yeah, and the author of The House Hacking Strategy: How to Use Your Home to Achieve Financial Freedom.

Mindy: What did I think? I thought it was a great show. I really like his enthusiasm for the concept. I really like his strategy, he’s able to see down the road and say, “If I make a few sacrifices now I’m going to have so much freedom.” What did he say? Something like it’s a year of pain to get 40 years of your life back. That’s brilliant.

Scott: Yeah, I think it is a great comment. I also think he said, “I enjoyed living behind a curtain, because it was an experience.” Sorry, I had to make that one comment, “It certainly was.” All right, but that’s the point though is if you house hack or do something that is a little more aggressive, or a little more overt for a year, two, three. However, many it takes you to push through the other side. All of a sudden, Craig finds himself in position where he has a net worth of several hundred thousand dollars.
He has no bad debt, all the student loan debt is paid off, right? He has very low expenses, it is a great job and generates a very good income, right? He is over the hump. For the rest of his life, he will be accumulating wealth, whether he really goes after it or not because of the system he set up for himself. He can add in whatever it is that makes them happier that he wants without really bearing in that as a delay toward financial freedom. Just kudos to him and kudos to how he's been able to apply this strategy here in Denver, when a lot of people feel that they can't.

Mindy: Yeah, and kudos to him for sharing the story of his mistake. Not screaming his tenant who turned out to be smoking Meth in his house.

Scott: That’s right.

Mindy: I really wanted to bring that up because I already knew that story because I was there living it with him. I mean, not living with him, but he would come in and talk about it in the office, I lived through it with him. He works at BiggerPockets, all he does all day long is talk about real estate investing. He’s in the forums, he reads the comments about all the people that have done this in the past that have made the same mistakes and yet here he is also making the same mistake. I think it’s really important to point out that you can get cocky and you shouldn’t get cocky and everybody makes mistakes. He learned from it, he’s never going to make that mistake ever again. You don’t have to make that mistake, learn from Craig’s mistake and always screen your tenants.

Scott: I’m trying to think and thinking about that, right? Because this is everyone’s worst nightmare is Craig situation, I think as a house hacker, right? What is my tenant is that person? Does that in my property? That’s a risk that comes along with renting your property out, especially if you’re not following the principles to screen tenants with that. However, it’s just as much of a risk if you live in a place that somebody else is the landlord of.

Mindy: Exactly, you actually have less control.

Scott: There’s a lot of ways to look at that, and you certainly don’t have that risk if you are buying a home and you’re single family home. You also are completely alienating yourself from these possibilities that house hacking brings in the wealth building equation.

Mindy: Right. I’d like to point out that Craig has never had a problem with any tenant that he has properly screened. He fully admitted that he got lazy, I really wanted to share that part of it because people think that Brandon Turner never makes any mistakes, but he makes mistakes.

Scott: I make mistakes.

Mindy: Yeah, really? I thought you were perfect.

Scott: I made plenty of mistakes with my tenants. I had one experience where I had a bad tenant because this tenant, basically a series of great screen tenants came, then one leaves and other roommate comes in and other roommate comes in and other roommate comes in. All of a sudden, I’m left with a tenant that just because I wasn’t as diligent. I didn’t go through my screening process with. Luckily, things have worked out so far, but these things can happen no matter how tight you try to control them with these screening things, right? Every one of us has made a mistake. I’m sure you’ve made mistakes in your living flipping business.

Mindy: Never, I’m perfect. I’ve never had a mistake.

Scott: Yeah, it’s not about making mistakes it’s about mitigating them. You know what, if someone’s going to live in the property with you, that’s what you just can’t afford to not screen your tenant.

Mindy: Yeah, yeah. We have an article on the BiggerPockets Real Estate Blog called something like The Ultimate Guide to Screening Your Tenants or whatever. I will find that and I will link it to the show notes, which can be found at biggerpockets.com/moneyshow95. Scott, should we get out of here today?

Scott: Let’s do it.

Mindy: From Episode 95 of the BiggerPockets Money Podcast, he is Scott Trench and I am Mindy Jensen and we’re out of here.

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In This Episode We Cover:

  • Craig’s journey with house hacking
  • Craig’s numbers on his first house hack
  • What PMI is and Craig’s monthly PMI payment
  • How he leveraged his first house hack into the second house hack
  • Craig’s numbers on his second house hack
  • The importance of considering the occupancy law
  • How he bought his third house hack (plus the numbers)
  • Managing all his rentals
  • How to find a property manager
  • The idea of sacrificing comfortability for profitability
  • Advantages of house hacking
  • What kind of property makes for a good house hack
  • The concept of luxury house hacking
  • Getting pushback over house hacking
  • Craig’s biggest house hacking mistake and how to prevent it
  • And SO much more!

Links from the Show

Books Mentioned in this Show:

Tweetable Topic:

  • “At every point in this journey, you are never going to be like your peers.” (Tweet This!)
  • “Be prepared to be different if you decide to embark on this house hacking journey.” (Tweet This!)
  • “Every dollar that doesn’t come out of your pocket is a dollar that you can save.” (Tweet This!)

Connect with Craig

The BiggerPockets Money Podcast is for anyone who has money… or want to have more! Join BiggerPockets Community Manager and Podcast Director Mindy Jensen and CEO Scott Trench weekly for the BiggerPockets Money Podcast! Each week, financial experts Mindy and Scott interview unique and powerful thought leaders about how to earn more, keep more, spend smarter, and grow your wealth. You'll get tips for getting your financial house in order and actionable advice from guests who have been in your shoes—and found their way out.

    Gina Larson
    Replied about 2 months ago
    I absolutely enjoyed this podcast and can’t wait to read Craig’s book! One piece of constructive feedback though is that as a woman, I don’t feel that some of Craig’s strategies that he has employed are feasible and I think that could have been addressed. I would fear for my life living with complete strangers and I think that many women would echo that sentiment. I’m going to read the book and look forward to learning how to adopt other feasible strategies of Craig’s but wanted to remind BiggerPockets of their female audience. :)
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied about 2 months ago
    Great podcast Craig!
    Tim Burke Rental Property Investor from Ithaca(ish), NY
    Replied about 2 months ago
    I don't see a picture of the curtain like we were promised in the show.
    Katie Rogers from Santa Barbara, California
    Replied about 2 months ago
    PMI: Anything your tenants are paying instead of you is just you paying through an intermediary. Your cash flow (income to live on) will be reduced. What is the trade-off for you? Is that $2000/month mortgage PITI or PI? Reserves: In my community, it is very common for the seller to provide a home warranty. Even if they don't, purchasing a home warranty can help stretch your reserves. After the period of the home warranty expires (usually one or two years), it is not really cost effective to keep renewing the home warranty, even though the home warranty companies will try to sell you a renewal. Keep in mind that if you plan to keep the house for the life of a typical 30-year fixed rate mortgage, by the time the 30-years are up you will have paid at least 2.5 times the purchase price of the house (principal, interest, property tax). The only cost you can control after closing is interest by prepaying as much principal as possible. You are going to have to pay the principal anyway. The interest you save might as well be cash flow.