Brandon: This is the BiggerPockets podcast show 350. What’s going on everyone? This is Brandon Turner, host of the BiggerPockets podcast, here with Mr. David Greene. What’s up buddy? Welcome to the show.
David: Thanks man. I’m having a great time. I actually was out this weekend running the trails like I told you about. I was running down a hill and I kind of got cocky because I’m starting to get in better shape and I was feeling good. I started to go up way too fast. My toe hit a rock and I did that weird spiral thing where you’re starting to fall and tried to save it and I couldn’t and I just ate crap, and skidded down that hill. It was very painful.
Brandon: Did anybody else listen to this just now? Their first thought was someday David’s going to turn this into an analogy. This is hands down going to be an analogy someday.
David: This is where the fuel comes from. I pay a price to get these analogies. There’s pain associated. I hope you all appreciate what I’m going through.
Brandon: Have you ever like been really confident about a real estate deal? You felt really good going into it, and then you just fell on your face?
David: You know what? Today’s guest actually shares a story of when he got too confident and he didn’t screen a tenant and he stubbed his toe and he stumbled all the way down into a painful lesson that he had to learn. He’s going to share that with you guys today. Make sure you listen to all the way to the end because it’s a really good story. Thank you Brandon. That was a wonderful setup. You gave purpose to my pain and that’s what a good friend does.
Brandon: That’s what a friend does. All right before we get into today’s show though, let’s get today’s quick tip. Our quick tip today is simple. Look, this episode is one that I believe has the potential to really change people’s life. Somebody’s life, and a lot of people are going to listen to this and the direction of their life is going to shift. It’s like an airplane taking off in one way. If you shift it just a few degrees, they end up thousands of miles in a different direction. That’s what this episode could do. Here’s what I’m asking. If you listen to the show and you’re like, “Wow, this is really good information,” will you share this with somebody? Just go and share this with somebody who might love the idea of house hacking, and that could change their life and idea of financial independence forever.
Brandon: Do it you can share with one person individually or just go and put it up on your Instagram or something. You can tag me or @beardybrandon or DavidGreene24, @BiggerPockets. Let us know so we can kind of jump into those conversations as well. But the idea being, we want to get this message out to as many people as possible because we believe that house hacking is one of the best strategies for building a good foundation to financial independence that there is. Craig just goes into depth today on how to get that done. House hacking changed my life when I got started with real estate, it changed David Greene’s life here. We talk about that in today’s show as well. That’s my not so quick tip.
Brandon: Today’s guest is Craig Curelop. Craig is a buddy of mine. He actually, I first heard about Craig a few years ago because he applied for a job at BiggerPockets as a financial analyst. He came in, he got the job, and I realized right away there was something different about Craig. He was a rock star. Just one of those guys that you just go do to get stuff done. In fact, David Greene even here coined the term Cureloped. If you Cureloped something it means you like you just like above and beyond do awesome stuff. Craig is an awesome guy. But what even more impressive was Craig took the advice he was learning on BiggerPockets, had never bought any real estate, and within two months had bought a deal, house hacked it and then has bought more since then.
Brandon: I’ve kind of been able to watch the entire journey through the power of house hacking be able to achieve really financial independence. He’s even on Instagram now is like The Figuy. If you go to @thefiguy, F-I guy, you’ll find Craig. He’s that that guy that’s like the financial independence guy. Today’s interview is with him on how to get started with house hacking. What is house hacking? Why it works for people, not just for single young people, but it works for anybody. We talked a lot about things called the hedonic adaptation, which is a super powerful, I guess term, that can both hurt you or help you, depending on how you look at it, which is really, really good.
Brandon: We also talk a lot about how to find house hack deals. What makes a good deal? Why you can pay more than house flippers or multifamily investors by house hacking. We have a great conversation about what we call … what Kevin, actually our producer, calls the Comfort Continuum. Kevin actually labeled that one. So we’re going to give him a shout out. Nice job Kevin. The Comfort Continuum. Again, total life changing stuff. Without further ado and without further building up the show because it’s going to stand on its own let’s … oh, you know what I should say before I bring in Craig? I’m just making this whole intro weird today.
David: There’s a little more ado. It’s not further ado it’s just some ado.
Brandon: Some ado. One of the reasons today we’re talking with Craig is because we are actually launching a book today on BiggerPockets. A book that I’ve been looking forward to for years. It’s called The House Hacking Strategy. It walks you through exactly how to do house hacking. We go into depth today, but if you want a full book on this topic, go to BiggerPockets.com/househacking. You’ll find information on the book there. Again, BiggerPockets.com/househacking. Of course, we talk about the book later on in the episode about a half hour from now. Now without any more ado let’s bring in Craig to the BiggerPockets podcast.
Brandon: All right, Craig, welcome to the BiggerPockets podcast, man. Good to have you back again on the show. How are you doing?
Craig: Hey Brandon and Dave, thanks for having me here.
Brandon: Yeah so we’re going to talk about house hacking today, because that is something that you do, and you’ve done, and you wrote a book about. I did and love it, and technically David Greene here has done it, and pretty much anyone who’s the coolest people in the world have done it. Let’s talk about how it’s done. First of all, house hacking, what is it? Then I’m going to go into your story, but first let’s just get it out. What is house hacking?
Craig: House hacking is basically a new type of real estate investing for newbies. It is basically when you buy a one to four unit property, you live in part of it, you rent the other part out. The rent from your tenants is covering your mortgage, and you get to live for free. What makes house hacking so powerful, is that you are able to do it with a three to 5% down, rather than putting that typical 20 to 25% down. You really don’t need to save that much to do it, and you can quickly eliminate that housing expense.
Brandon: Why one to four unit, why would somebody care about that?
Craig: Because a bank will not give you a loan unless it is a residential property, and their definition of a residential property is between one and four units. That loan will basically say that you will live in the property for one year, which is why you also have to live there.
Brandon: You’re not going to get one of those three and a half percent down really nice or even 3% some banks will do now. You’re not going to get one of those crazy low down payments if you’re buying a 12 unit or something.
Craig: Exactly. You got to be one to four.
Brandon: There we go. Okay. Now you started with house hacking sort of in a little different way. Now when I used to house hack, my first was a duplex. Well technically speaking I guess I owned a single family house. I rented out the bedrooms, and then I moved into a duplex, rented out the unit. You could call both those house hacking. Because you did say one to four units which means single family or whatever. Walk us through the beginning of your story, because you were on the show before, a long time ago. But for those who didn’t hear that show, what’s your story? How’d you get into this whole real estate thing?
Craig: Yeah, for sure. It all started when I guess I was 23 years old, and I was in a job that I hated out in California. Basically, I decided that I did not want to spend the rest of my life working, and how to figure out, how do I get out of this? I read Tim Ferriss’ 4-Hour Workweek, and I learned that I needed a passive stream of recurring income to get over that. Now after dumb startup idea after dumb startup idea, because I was in Silicon Valley, I realized that man, why try to reinvent the wheel, and try to start something that no one’s ever heard of before, when I can just get into real estate investing, it’s tried and true and everyone does it.
Craig: Then I stumbled upon BiggerPockets, all that kind of stuff. Then I watched a bunch of your webinars, Brandon and decided that house sacking was 100% the reason why, like that is the jumpstart to kind of get started in real estate investing. My first one, I moved to Denver to work at BiggerPockets, and within two months of moving to Denver, I closed on my first house hack, which was a duplex. It was a two bed, two bath. So each unit had one bed, one bath, and it was an uptown duplex just North of City Park, which is Denver’s largest park. Great location, I could still walk or bike to work, which also was super helpful, and it was totally redone so I didn’t have to worry about construction or anything like that. It was just get in there and start managing tenants, and start managing the property.
Craig: What I did with that one was I rented the top one out full time, and I lived in the bottom. That still wasn’t quite covering my mortgage. That was my main goal was to cover the mortgage. I got a little bit creative, and I Airbnb’d out my bedroom. I made like a quasi-bedroom out of my living room. I put up a room divider and a curtain, and put a futon behind there. Lived behind a curtain on a futon for a year, while Airbnb’d out my bedroom and basically having a revolving door of roommates coming in and out.
Brandon: That’s crazy. The curtain in the living room. I remember the last time you were on the show, we talked a lot about that and made a lot of jokes about that. It’s crazy, but it’s also like look, this was important to you, you made it work. You’re like, “hey, financial independence is important. Getting my mortgage covered is important, so I’m going to sacrifice and do what needs to be done.” This is a phrase that you, I think you have in your book, and I think I’ve heard you say it before, an idea of like comfortability versus profitability. What do you mean when you say that?
Craig: There’s tons of ways you can house hack. But the ultimate thing, and I feel like this is with almost anything in life, and I think David Greene you could probably attest to this as well, is that the more comfortable you are, the less profitable your endeavors will likely be. I could’ve kept my own bedroom and that was super comfortable, but I wouldn’t have then covered my mortgage. I would have probably still be paying three or $400 a month to my mortgage, which is still way better than not doing that. But I really had a goal, so I had just covered that. There’s multiple types of house hacking that you can get into. The one that I did was kind of a quasi like traditional Airbnb.
Craig: There’s the rent by the room, which is slightly uncomfortable because you’re living with roommates and people that you don’t know. But if you want to move up that comfortability scale and do what I think Ben Leibowitz coined it, the luxury house hack. Which is when you buy a large house, the house of your dreams, but it has a mother-in-law suite or maybe an additional dwelling unit outback. You rent that out live in the house of your dreams, and you just have people coming in and out renting out your mortgage, and you don’t actually share any space with them.
Brandon: That’s actually kind of exactly what I’m doing here in Hawaii right now. I have this ocean view house with a pool and everything, and I’m like, if I wanted to now, I only rent out one of the units. It’s actually three units total. I only rent one of it. If I rented the other one out, I’d be able to live for, not quite free, but like it was like 1000 bucks a month is where I’d be at. But if I had moved into the smaller of the houses and rented out the one I’m currently living in, I’d live for free with an ocean view and a pool in Hawaii.
Brandon: People complain sometimes, “I live in an expensive market this is not possible.” I’m like, “No, you don’t live in a more expensive market than me. No one lives in a more expensive market than me. Maybe somebody out there.” If you can house hack at a $2 million price level, you can also house hack at a $40,000 price level right?
Craig: Yeah, exactly. The numbers are just bigger, but they all work the same.
David: I think it’s important to point out when we typically look at will my rent cover my mortgage? That’s like the Holy Grail. If you can get your mortgage covered, you’re good. But if you’re 100 bucks short, it’s literally just a $100. It doesn’t mean that you failed, and you weren’t able to cover your goal. I have a lot of clients in the Bay Area that we help do the very same thing. They come to me and they say, “Hey David, I hear you and Brandon talking about house hacking. I want to do it.” They want clarity on it. What I’ve seen from talking to Craig, looking at his book, seeing how this works in real life is you’re also forgetting Brandon, that even if you’re like, you’re saying $1,000 a month, I’m not covering.
David: Well, what about the principal pay down on that loan? What about the tax incentive that you’re getting owning a home that you don’t get when you’re renting a home from somebody else? What about the appreciation that’s going to be coming in? What about the fact that every year your rent should be going up if you buy into the right market and the economy continues to go better? You’re actually getting a lot more benefits than just the rent that’s coming in. When you factor that, all of those things into this equation, house hacking is ridiculously powerful. I mean it is a force to be reckoned with when it comes to building financial freedom. I know Craig that’s actually something that’s kind of near and dear to your heart, right?
Craig: Yeah 100%. The whole reason that I’m doing this right now is for financial freedom and financial independence. It expedites the process so much because David, like you said, you have all those wealth factors, and one thing to add to that is also the rent savings on that. You’re still maybe paying $100. But if you had a comparable place, but renting, you were probably paying close to $1000. It’s still a $900 cash flow difference. But you take into account all of those factors that David just mentioned, the appreciation, tax incentives, the loan pay down.
Craig: I call that in the book called the net worth return on investment. Basically how much does your net worth increase with respect to the initial down payment you have? Very rarely is that number under 100% after the first year. Basically, you make your entire money back in the first year when you house hack. I think in all the case studies in the book too I think everyone had over 100% net worth return on investment, which is why house hacking I think is so powerful.
Brandon: That’s cool. I don’t know if I’ve actually talked about this on the podcast before, but I’ll tell a quick story if you don’t mind. When I bought this house, this luxury house in Maui, I wasn’t going to do it. I really wrestled with and I came and looked at it, and I fell in love with it, which is rule number one you don’t do in real estate. But I fell in love with this house and I really wanted it. It met everything I wanted. I called David here. I’m staying at this hotel we were in town. I called David and I was like, “David, here’s the deal.” David Greene here, I called him, I’m like,” David, this is the deal, this is the house. I can’t do it. It’s just too expensive. I don’t want to be the guy in a really good market who’s making good income, goes and just completely blows his entire budget because he’s making good income now.”
Brandon: “Knowing that the economy will go down again, and then I’m going to be …” that’s what happens in every cycle. Everyone, they spend too much. I was like I just can’t do it. I really want it. He’s like, “Well let’s walk through this.” He basically walked me through that. First of all, the cash flow. If you rented out all the units, you can go back and live anywhere else and actually make money. I’m like, “Okay, well yeah that’s true.” Then he’s like, and then how much you pin down the note on that multimillion dollar house every single month. Okay, well that’s true. How much appreciation can you expect on average over the next … Is the house in Maui worth almost two today? Is that going to be worth more or less 20 years from now? Yeah, a lot more. He basically without saying that word the return on net worth, or the net worth return on investment.
Brandon: That’s exactly what he walked me through and that’s why I was like, “I really can’t lose because I can always fall back to renting because it does cash flow.” Now if this was not a non-cash flowing property, that’s a big difference. But that’s that financial independence piece that like, financial independence is the ability to do at least how I define it, what you want, where you want, when you want, how you want with whom you want. I have that freedom here. If I had to just rent out the units, I just rent out the units and move somewhere else. David Greene, thank you for encouraging me to buy this and to house hack this.
David: I appreciate that man. It was a honor to get to be a piece of it because I could just hear the anxiety in your voice. Your heart was saying, I need to do it. Heather loves this house. You came and you said, dude, of every house we’ve saw this is it. I know she wants it. But your mind was like, it’s wrong I can’t do it. What we did was what we tell other people to do. Don’t ask can I do it? Ask how can I do it? What would it take for me to be able to say, “Okay, let’s do this.” Craig, you mentioned something that I think is so powerful. You mentioned that there’s comfortability and profitability. I like to walk people through this example that it’s a spectrum. On one end of the spectrum is comfortability with very little profitability. On the other end is pure profitability with no comfortability. It’s like Brandon, you had a very similar story.
David: You were sleeping on the couch or renting out every bedroom. You’re six foot five of twisted steel and sex appeal. To wrap yourself into this three-foot couch. That is not comfortable for you, but you wanted it so bad that you did it. There’s probably a story to be told about how not only was that good for the moment, but it built up your inner muscle of delayed gratification, and being willing to do what it takes and deny yourself pleasures to be successful. Probably why you became here. Craig honestly, man, the same thing. I know the first time you were interviewed on this podcast, Josh was teasing about renting out your clothes to other people so that you can earn more money. That’s a man who’s comfortable. I’m willing to rent out my underwear if I could get ahead in life, and that’s why you’ve done so well. See you understood this concept.
David: Robert Kiyosaki talks about in Rich Dad, Poor Dad, rich people think a certain kind of way. They’re not rich because life gave something to them. Although sometimes that’s the case. It’s usually what life gave them was parents that taught them how to think. You understood I can choose to be comfortable or profitable. You pushed yourself as far towards the profitability side of that spectrum as you were personally willing to live with. I really think the listeners need to understand, this is why some people make it in real estate and other people don’t. Because they’ll come to me and they’ll say, “Hey David, I really want to house hack.” I’ll say, “Okay, where do you want to live?” They’ll tell me a city where it’s nothing but track homes. There’s no way you can get an inline unit in there, or a split level where you can combine it or there’s no duplexes in that area.
David: I’ll say the only way to do that is if you either rent out the rooms, or you literally modify your house to make it as a dual income property. They’ll say, “I don’t want to do that.” What they’re really saying is I need to be more comfortable. I don’t want the profitability that bad. House hacking as powerful as this, comes with a price, and the price is your comfort. You have to ask yourself, how much of my comfort am I willing to sacrifice in order to get ahead later and end up like the Brandon Turner, buying a $2 million place in Maui?
David: I think like Craig, I don’t know if a lot of people know your story, but I commend you so much because you embraced that and you did that. You were teased for it, and you were mocked for it and people didn’t get why you were doing it. Now you’re starting to build up some real momentum and we’re seeing the fruits of your labors. You deserve to be put up on a pedestal and acknowledged for doing it the right way. It’s really working out now.
Craig: I literally couldn’t have said it better myself, like exactly.
Brandon: All right, so let’s get into details about house hacking a little bit. How somebody can do this. We want to make this kind of a how to episode of the podcast. First of all, how do you know if house hacking is right for you? That’s kind of the first step, right? Is you have to decide, you have to make the decision I’m going to do this or I’m not. How do you know it’s right for you?
Craig: Well, if you want to achieve financial independence, and you want to do it within five to 10 years, I would say house hacking is again, the most powerful way to do that, because it is eliminating that largest expense that we talked about, which is likely housing. It is going to be a lifestyle change too. You have to be okay with a lifestyle change, to sacrifice in order to achieve that financial independence. Now, I think there is a strategy out there for everybody, and like David said before, it is about that whole comfortability spectrum thing. On one end of the spectrum I would say, which is the least comfortable but most profitable, is you live under a bridge.
Brandon: There we go.
Brandon: Financial freedom.
Craig: Financial freedom. You’ll be with Cool Mike and The Boys that are underneath the bridge.
David: In a van by the river.
Craig: In a van by the river. The second way right would probably be, maybe you have a camper or you have a van that you live in on your property, or a trailer or something like that. The third might be you rent by the room because you’re still living with other people. Then you maybe have the traditional house hack, where you kind of like Brandon was saying you have a duplex, triplex or quad. That way you at least you have your own unit, but you’re sharing walls. Then on the opposite end of the spectrum is the most comfortable, which is that luxury house hack we talked about previously, where you have that additional dwelling unit that you’re renting out. I think one of those you should fit into that spectrum somewhere, and wherever you fall in that spectrum is what you should do.
Brandon: That’s good. The spectrum of comfortability. Why can’t I say that word? Comfortability, and profitability. I like that spectrum that you guys are talking about because it’s smart. People tend to always be like, “No, I can’t do it because of this or I’m not going to be whatever.” Who just wrote that? Was that David? The comfort continuum?
David: I think that’s Kevin.
Brandon: Was that Kevin? Kevin. Kevin our producer who’s hanging out here and making sure our sound good. The comfort continuum, that’s deep.
David: I like it. I try to tell people that for everything in life, when they say they want something, like Brandon, you have such a good line where instead of saying, do I want this? You say, how much I’m I willing to pay to have this? Isn’t it something like that that you’re always?
Brandon: Well yeah, it’s like the idea. I didn’t make this up, I heard it somewhere. Rather than think what do I want? It’s what pain am I willing to put up with to get it?
David: That’s exactly right. Like Craig has mentioned, is there a bigger expense that almost all of us have than our housing expense? No.
Brandon: Taxes maybe.
David: Maybe, yeah, that could be true.
Brandon: But if you’re a real estate investor, probably not.
David: You and I have been walking on the beach before, and you and I have actually talked about, stop for a second. I totally lost my train of thought there. It was a really.
Brandon: That never happens.
Craig: A real nice long walk on the beach.
David: I was going to go with a romantic joke but I looked at your butt and I totally forgot what I pictured in my head. We were talking about house hacking is your biggest expense. Okay, I got it you’re ready? Brandon I know that you and I have talked about this before, that when we talk about people living in an expensive area and they’ll often say, “I just can’t get ahead. I can’t get ahead.” It’s almost always just your rent or your mortgage that’s more expensive. Milk doesn’t really cost a whole lot more in San Francisco than it does in Wisconsin. Cars are more or less the same price. Direct TV is almost the same price I think.
David: Almost every one of your expenses is the same whether you live in a place that you make $11 an hour or $50 an hour. The housing is what increases so much. If you’re like Craig and you figured out how to neutralize the housing expense, you get all the benefits of living in an expensive market and making a good income, and getting opportunity without having to throw your money back into real estate, and that’s where real big wealth comes from.
Brandon: I got this buddy who’s always broke. Calling me complaining, crying really it’s like always broke. He lives in one of the most really expensive city out in the East Coast. I’m like telling him, I’m like, well you got a couple options. The reason you’re broke is because your rent is $3,000 a month, and you make $12 an hour at your job. That’s why you’re broke. I tell him I’m like, “You got a couple options. You could either house hack your way.” “Well my wife doesn’t want to do that.” Which I want to actually want to ask you that Craig in a second. How to deal with that objection.
Brandon: His wife doesn’t want to house hack. “Okay, well then you’ve got to maybe move somewhere cheaper.” “I don’t want to do that.” Okay, you got some problems here. It drives me nuts. Then stop complaining is kind of the answer, right? If you’re not willing to take the only options you really have or, “Go get a better job.” “Well, I like my job.” “Okay well I can’t do anything,” something’s got to give, something has to give.
Craig: It’s a lifestyle change for sure, and you just have to figure it out for sure.
Brandon: Here’s what drives me nuts. It’s like people think, and I don’t fault them for it because I you don’t know until you know. But being a landlord is not that hard. It’s scary at the beginning, but having a roommate is not that bad if you had to do it. Having somebody live downstairs, if you had a duplex, not that big a deal, or if you had a fourplex, who cares? You get over it, and you’re not stuck there forever. It’s a year or two of your life for the next 50, 60, 70 years of your life. If you just sacrifice, I see those memes online sometime, but they’re so true. If you just work really hard for a short period of time, you can enjoy the rest of your life for a long period of time. Yet people don’t want to sacrifice.
Brandon: They want to eat their lucky charms marshmallows, and just leave the cereal in the bowl. I want to eat that cereal for a while and then pour another bowl. Then eat that cereal, and pour another bowl until I have just a huge plate of marshmallows or a bowl of marshmallows, and that marshmallowy milk. That’s good.
Craig: That’s a different analogy than I was expecting you to come up with.
Brandon: Now I have diabetes.
David: Financial diabetes Brandon Turner.
Brandon: There we go. Okay. A couple more questions to throw at you. We got a lot more questions. How do you find a potential house hack? How do you find one? What are you looking for?
Craig: I think everyone looks for something different. But what I personally look for is, I really like this whole single family strategy, where you rent by the room. I just never really elevated my lifestyle so I can totally continue to do that. But what I look for in a house is one, the most bedrooms and the most bathrooms per dollar. I try to get in the Denver area here, I’m looking for five bed, three bath. That’s about 350 to 400,000 that’s my sweet spot. I know that’s going to cash flow. Rent by the room, you’re going to cash flow about $1,000 over the mortgage with that kind of property. Also, you want a property that you can, I like a property that I can either have a lot of options with. Maybe I can section off the bottom from the top and Airbnb it later.
Craig: Or maybe I can rent it out as a full time unit, because I may not want to manage five people in a property anymore, and it has to work as a regular rental as well. Now it likely won’t work as well, but it still needs to work so I can hold onto it. I personally also look for the location in terms of where is the path of progress heading? Basically, just going in the next little neighborhood over. The prices haven’t appreciated there yet, but you know they’re going to because they’re building and building and building that way, and I don’t think they’re just going to go around my neighborhood where I’m going to be.
Craig: Put yourself right there, and I also look for bike paths I’m still biking to work. I still do all of that. Again, that also eliminates the whole transportation cost, which is likely people’s second largest expense. By eliminating house hacking and by eliminating my transportation expense, you’re saving 50% of your income just by those two things right there.
Brandon: Really good. Well are you looking on the MLS or something more creative to find these?
Craig: I just go straight on the MLS. I think with this strategy, every single deal works. It just doesn’t work for me.
Brandon: Explain that.
Craig: Financially, every single deal that has a five bed, three bath in the areas that I’m looking that are 350 to $400,000, they work a lot. Between looking at 700 to $1,000 over the mortgage at least every single time. Then I just look at the house itself and say, “Okay, do I want to live there? Would someone want to live here if I moved out? How’s the parking situation?” All of these kinds of things. “Where does the improvement come in? Is the path of progress moving that way?” I just kind of look at the house and evaluate things that way. That’s basically how I do it.
David: Can you define what you mean by the path of the progress for listeners?
Craig: Yeah, so basically cities tend to move in general directions. I’m going to use Denver as an example because that’s where I live. Denver, basically, I call it the heartbeat of Denver is right downtown. Then if you just go South of Denver is kind of already been developed. It’s kind of in the past in my opinion. But the future is North of Denver. You look at RiNo, RiNo’s an area in Denver where five years ago, you would not step foot here because you’d probably be killed. But now it’s one of the most popular areas in the city.
Craig: I just keep going north because it’s clear that Denver is moving that way. I’m just North of RiNo where the property values are still cheap, but I can still get those. I could still command the rents not quite that RiNo can command, but still well a higher, well above what I can get for the mortgage. Also it’s very helpful to know what the city is planning to do. For example, the city of Denver is planning to put a basically like an Empire State building type thing right in North Denver. I’m sure my properties are not going to be hurting because of that. That’s going to bring tons of jobs and people are going to want a place to live that’s close to their work.
Brandon: What’s your plan long-term with these property? I mean let’s say you buy a single family house, let’s go house hacking for single family for a minute. Let’s say you buy a single family house, and you rent out the bedrooms and you live in one of the bedrooms and everything’s great and you’re making good cash flow and you’re living for free. Then you get a girlfriend or a wife or a husband or whatever and you just want to move out. You get a better job in another city. What do you do? Do you just continue renting out by the bedroom? Do you do analyze it as what it would be like to rent out as a whole single family house just to one family or how do you look at that?
Craig: It kind of depends on the situation as to when that occurs in my life. If that were to happen right now, I would say I would move out and I would rent out my room. I actually have a couple of property managers that are able to do the rent by the room, property management. They’re hard to find, but you just have to kind of keep looking, and you’ll find someone that is willing to do that. That would probably be the thing I try first. Now if that didn’t work, again, I also look at the property to make sure that it will also rent out as a whole unit by itself, and still be able to cover in access to my mortgage to have room for those expenses as well.
Craig: The houses that I have will work both ways, but it’s way more profitable to do the rent by the room strategy. I’m going to do that for as long as I can extract the most out of my dollar until I decide I don’t want to do that anymore, or it’s too much work, and then I’ll be able to sit back a little bit more.
Brandon: Yeah, that’s really good. One thing people ask me a lot like how they can analyze what they should be looking for in a house hack, or how do they analyze it? I tell people, I’d love to know your thoughts but it sounds like you’ve just pretty much said exactly what I’m going to say. Analyze it both ways. Analyze it as if you’re living there, because you probably will, I mean you’re going to, you’re going to house hack it. But then also analyze it like you’re not going to live there, because you won’t forever. You don’t want to buy a property that makes really good sense right now, and then as soon as you move out the day move out, you’re suddenly losing 1000 bucks a month in cash flow. That would suck. Analyze it both ways. Do you agree?
Craig: 100% agree. Also, when you are analyzing the deal too, I don’t know if you want to get into this. I just think that people a lot of times there’s too many numbers when you actually like looking to analyze the deal. You have the payment, the monthly, the mortgage, the insurance, the taxes, the vacancy, the cutbacks all the stuff. I just I’m a firm believer of you need to be a certain threshold over the mortgage for the deal to work. You have your mortgage payment. My threshold is between 500 and $1,000 or more. But it’s going to vary depending on your city. It also varies depending on the property.
Craig: On an older property, I’d want a little bit of a higher threshold because there’s going to be a little more room for those expenses that come up. Whereas on a nicer property, that doesn’t mean that’s a little bit newer, you won’t need your reserves to be as high. That difference to be as high. But the bigger that difference, the better the deal is going to be. I don’t think there’s ever a case where that was not so. I just think people get really like all of these numbers get caught out, and they take hours and hours to analyze deals. I think it’s easier to literally go into a property and say, “Okay, I know I can get about 3,500 for rent for this property. My mortgage will be about 2200 I’m making $1,300 over the mortgage.” That’s a great deal. That’s it.
David: You know what’s cool is you don’t have to worry nearly as much about the ROI on your huge down payment of 25% that you’re dumping into this thing, because you’re going to a three 5% down. There’s very little opportunity costs. When you actually understand house hacking both from the person who owns a property and makes income, and the person who rents the room from you because really they’re saving money too, we haven’t even talked about that perspective. How much better is it to pay 600 bucks for a room, than it is to pay 1500, $1800 for your own comfortable apartment? When you see how it benefits everyone, you really wonder, why does not everybody in the world do this? Why is this the secret that we have to tell people about? It’s amazing.
Brandon: Yeah, that’s really good. David you mentioned three and a half year loan. I mean, sorry percent downs, like three and a half percent down. Well, maybe 5% some banks are doing 3% for owner occupied loans, which means you agree to live in the property. Craig, why can’t I just instead just say, “I’m going to live in the property, get that 3% down payment, and then not move into the property.” Then secondly, why can’t I just do that every month, every week, over and over and over? What’s to stop me from that?
Craig: Well, bank fraud is to stop you from that. Or mortgage fraud, I should say. If the bank does catch you, now they’re not going to your house and looking in your window and seeing if you’re actually living there. But for some reason if they do catch you, that’s five years in jail. I think what’s worse, I mean imagine being in jail, being next to the guy who killed somebody or whatever. What are you in for? I just didn’t live in the house that I said I was going to live in. You also look like a wimp in jail. There’s absolutely no way.
Brandon: On the positive side when you’re in prison, not only do you get your housing paid for, but you also get food paid for or anything. No travel expenses, no car expenses. This might even be better than homeless. Because homeless, you got to pay for food.
Craig: Prison hacking, I like it.
David: We’ve talked about this once before-
Brandon: I think we may have. That’s going to be your next book, right? This would be the follow-up to the book on house hack. What’s it called your book?
Craig: It’s called The House Hacking Strategy.
Brandon: The House Hacking Strategy. Your next is going to be the prison hacking strategy and that book’s going to be a best seller.
Craig: I sure hope so.
Brandon: Really good. All right, David.
David: I have a question. Go ahead Brandon, you go first.
Brandon: I actually was going to actually ask you a question David, because I know I mentioned a minute ago, I know you’ve done some house hacking stuff, but I don’t even know all what you’ve done. Can you explain your journey real quick through house hacking? Then we’ll go on with some more questions.
David: The first part is, I’m in this really unique position as a real estate agent, where not only do I do this for myself but I actually help other people do it. I get massive exposure to different strategies and how they work. That’s why I’m such a big fan of Craig and his book. Because I’ve seen there are people that literally it did not make sense for them to buy a home until you consider house hacking, and it becomes way better for them. They’re spending way less than the rent, and they’re owning a home and they’re getting future appreciation. In the Bay Area, what we have to do is figure out, because there’s not a lot of houses that are just a duplex or triplex, we don’t have many of those. You kind of have to be creative about how to do it, like what Craig’s saying. Renting out rooms, buying houses with a split level so that you live in the downstairs finished basement, and you rent out the upstairs.
David: Sometimes that means you got to run a bathroom downstairs. You’ve got to take the plumbing from above and run it down. There’s going to be a little bit of rehab work that would be done. The first thing I would say is like, don’t think you can’t do this, because there’s not just a duplex and you needed it to be a duplex. If you can find one that’s amazing, but you can make it work without that. Sometimes that’s even more profitable. The way I do it is super simple. I live about 12 minutes away from my real estate office in Discovery Bay, California. What I do is I have interns that want to come work for me, move into my house and rent a room from me. Then work in the office where they learn how to build wealth through real estate. I just rent out my rooms. I’m a single guy. I don’t use hardly any of my house anyways. I really only need a bedroom.
David: The kitchen is fine to share with everybody. It ends up paying my mortgage for me. I get to live 12 minutes away from work. I still have all the space that I would need, and I’m not home a lot, so it’s not that big of a deal to have roommates. I just think, Brandon, you said that earlier and it’s such a good point, is people think in their mind, “I just couldn’t have roommates. I just couldn’t do it.: That’s not true. Craig set up a little divider in his living room, and put a futon in there and boom, he’s saving massive money, and it’s not complicated.
David: If you can’t have people in the house with you, you just cannot do it, then you just look for house that has an area that you can divide. Can I rent out the downstairs and live in the upstairs? Can I rent out this side of the house and live in that? Can I find a house with an ADU? Can I make a house with an ADU? The idea of house hacking is a principle. It’s not like I need to find this thing and run with it. It’s the idea that your home can generate income for you and reduce your biggest expense.
Craig: Have you heard of hedonic adaptation?
David: No, but I like the sound to that.
Craig: It’s the whole idea of like, basically you get something new, where you do something for the first couple of weeks and it feels super uncomfortable or super different. But two or three weeks later, it’s kind of normal. It’s like if you were to buy a Ferrari, the first two weeks you’re going to feel like a cool cat in that Ferrari. Then week three it’s going to be a car. It’s the same thing with the house hack. The first two weeks behind that curtain was a drag for sure. I was not comfortable. It was hard. I wasn’t sleeping very well. But then towards the end, my room was vacant, but I would still choose to sleep on the futon because that was my bed. Now that I felt more comfortable there.
Brandon: You adjust pretty quickly. Now a couple of questions for you. First of all, is this only a single person’s game? Is this only something that the young 25 year old, how old are you?
Craig: I’m 26.
Brandon: 26 year old guy can do, or David Greene, handsome young real estate agents can do? Or is this something that ugly guys like I could do?
Craig: Anyone can do it. Brandon, you did it.
Brandon: I did it.
Craig: Anyone can do it. It just depends on what strategy works for you and your family. Again, it’s going to be harder to live behind the curtain with a family. But I actually know someone who did live behind a curtain in their living room with a family, and they gave me the inspiration to do what I’m doing.
Craig: Yeah, it was in San Francisco actually when I was living out there. I’ll tell you if you’re okay with being a little bit uncomfortable for a couple of weeks before that hedonic adaptation sets in, and you become comfortable doing whatever that is, you can absolutely do it.
Brandon: That hedonic adaptation thing works both ways too. You get used to certain things. When I was first like, when Heather and I first got married, we would literally sleep in our car. We did Prius hacking, we traveled around the country in our Prius and slept in the back because the hotels are expensive. We camp more often. That was a trip. Then we got into like, well we started staying at super eight motels. Super eight or motel six, the cheaper $70 a night hotels. Now today we rarely stay at anything that’s less than a Hilton or a Marriot. I get into Four Seasons level, I only stay at the Four Seasons. I don’t know, but it works both ways and it’s dangerous. It’s dangerous because you get sucked into this idea of now I’ve got to pay. I had a friend once we went out to dinner, and I’ve said this on the podcast before, but I’ll say it again, I went to dinner with this friend.
Brandon: He was talking about how he’s living just he’s broke, he’s living paycheck to paycheck, He’s always just scrounging for money. Then he said he made like $300,000 or $250,000 a year in the past year. I’m like, “What do you spend your money on?” He’s like, “I don’t know, I’m just like I’m living.” The waiter comes over and he’s like, “What would you like?” “I’ll get that bottle of wine.” It was like $400 bottle of wine. He just ordered it without even think about it. I was like, “I get it. That’s that hedonic adaptation.” That was normal to him and that was acceptable and that was comfortable. He would not, he aint going to buy $100 bottle of wine or a $50 bottle of wine. That’d be ridiculous.
Brandon: It sounds like I’m making fun of my friend, but I do the same thing. We all do the same thing. We’re wearing nice clothes. But there was a time in our life when we were probably in college where we didn’t wear nice clothes. We shopped at thrift shops or whatever. That’s a natural part of life. How does somebody, you could say, well let’s shift slightly from a house hacking and go a little bit broader. Financial independence. What is financial independence? How does that hedonic adaptation hurt that? How can somebody overcome that? Big picture here.
Craig: Big picture financial independence is basically, the technical definition is that when your income from your investments, the passive income from your investments, exceeds your expenses, such that you no longer have to work. That basically frees up 40 plus hours of your week, because that is dedicated to work, and now you can just go pursue your passion and travel, spend time with your family. Or you can continue to work, but now you have all of the leverage and negotiation in your hands rather than your employer’s hands. That’s the short and swift definition of financial independence. That’s again what we do here at BiggerPockets. It’s just teach people how to achieve financial dependence with their real estate investing, so they can then go and change the world and do whatever they’re super passionate about. That’s why I’m super passionate about this as well, and why I love house hacking.
Brandon: Amen brother. I like it. I want to house hack, Craig. I’m looking around and I don’t see any easy ones. There’s no duplexes or triplexes priced below market value where I can add value and I have low risk. What would you tell me that I should do?
Craig: I would say you have to get creative. I’ve heard this multiple times now in this market, there’s no such thing as finding deals. You have to make deals.
Brandon: That sounds so smart. Who says that?
Craig: Probably David Greene or Brandon Turner, but who knows?
Brandon: Who knows? Not me.
Craig: That’s kind of like the same thing that I’ve been doing in the Denver market. The first one, I lived behind the curtain that was making the deal. Right now, that duplex is on its own, and it works when we moved out because there’s two separate units. Again, I was trying to find another duplex for a while or triplex or quad, but then I realized that it just wasn’t working right. There were very few that actually worked and the ones that maybe came on the market were gone in the second by cash buyers that I could not compete with.
Craig: Then I went, okay, what else could I do? Then I looked into the single family home option and renting out the rooms. That worked great. That would be in my opinion, again it’s the best option because you profit so much. You still have your own living space in terms of like you have your own bedroom, you’re still sleeping behind a door and windows and all that kind of stuff. Does that answer your question?
Brandon: Yeah, it was kind of like if I’m cruising on Zillow and I’m looking for properties, and I live in Austin, Texas, what type of stuff would you guide people to be looking for, for a house to be a good house hack?
Craig: The first thing I do is I ask them what their comfortability levels are. I’m also an agent too here in Denver and I help people house hack as well. First thing I always ask is, what’s your comfortability level? Are you willing to take the cheapest room in the house and rent out all the nicest rooms? Or do you want the most expensive room in the house? Or do you need your own place? In which case we’ll have to look for a duplex, triplex or quad. Then I tell them, if you’re going to go that multifamily route, again back to that spectrum, you’re going to sacrifice profitability for that comfortability. You’re going to pay for that comfort.
Craig: Usually they end up going with, “Yeah, it’s my first one. I really want to get the most out of this first investment. We’ll go with the single family,” and usually it’s not too hard to convince them that way. But again, if they are really gung ho about having their own spot, I’ll look for a place with a separate inline unit or the duplex, triplex or quad, stuff like that.
Brandon: That’s cool. One thing that we kind of touched on it a couple of times here, but I wanted to just point it out here about, we talked about the financial side of financial independence. I can pay my bills. I don’t have to work. If something happened, I lost my job, I’d be okay. What I think is actually probably the best thing about house hacking is when you eliminate and financial dependence in general, when you eliminate that expense, you are able to then take risks on other big things in your life that help you generate massive revenue later on. By house hacking it gives you the ability to quit that crappy job and go take a shot at a startup.
Brandon: Or you quit your job and go into flipping houses full time or being a real estate agent. The reason I told that story earlier about that friend of mine who lives on the East coast, and that $3,000 a month rent. The reason he wants to be an agent, he keeps talking about wanting to be a real estate agent. David, you know the stats, however long it takes agents to make their first sale, and how many new agents make nothing the first year. He can’t do it. He can’t take that risk. But if he had no payment at all to live, even for like a year again, like that return on potential we’ll call it, the ROP. The return on potential is huge. It’s millions of dollars for a little bit of uncomfortability for a few weeks until you get used to it.
Craig: Yup, exactly. I think Scott says it, I love the way Scott says it is. He says most people are out there playing not to lose, but once you’re financing independent, you’re playing to win. It’s totally different. I totally agree with you what you said.
David: It’s an amazing idea because as you’re house hacking, you’re probably less comfortable. There’s a part of you that’s wanting, “I want to get out of here.” How powerful is that as a motivator to get you in there? Play to win. Wouldn’t you guys agree that’s one of the main reason people don’t succeed is like, they’re just comfortable and they’re on cruise control. They’re having a hard time finding that inner beast that just wants it so bad. Well, when you’re sleeping on a futon every day and you can’t have your girlfriend come over or whatever, it definitely puts a fire in you to want to get ahead and that’s such a good point. You can access the return on your potential.
Brandon: All right Craig, I want to know about the book a little bit. Because I know it’s coming out. I know you sent me an early copy of it. It’s fantastic. Really good. You sent me an early draft of it as well and I read that one. I was like, this is unbelievably good. Not to say I didn’t expect you to be good, but I had not really read much that you had written before. It was really, really well written. I was very jealous that I didn’t get to write the book on house hacking, and then I read yours. I was like this is so much better than anything I would have ever written.
Craig: I doubt that.
Brandon: It was really good. The book is called The House Hacking Strategy: How to Use Your Home to Achieve Financial Freedom by Craig Curelop. Am I saying that right or is that Curelop? Do people say Curelop?
Craig: Everyone says Curelop, but it’s actually Curelop. 25 years into my life I figured out how to get people to say it correctly and it’s like Cureplop without the first P.
Brandon: Curelop. All right I like it. Curelop all right, so the book is you can get it at BiggerPockets that comes out as house hacking. I know there’s an audio book version, there’s the eBook version, there’s a physical book of course. Then there’s the ultimate edition, which I recommend everybody getting because it’s has all of that stuff included plus a bunch of cool bonus stuff. But that’s only if you get it on BiggerPockets. Do you want to explain anything more about the book? Or why’d you write it? What people do, where do they get it at?
Craig: The reason why I wrote the book was because again, I think my number one passion is to help people achieve financial independence through real estate investing. I think the best way to start and to learn is through house hacking. I basically took everything I know about house hacking and funneled it into a couple hundred pages in this book here. Sorry, I lost my train of thought. What other questions were you asking me?
Brandon: No, you’re good. Just where can people find it at?
Craig: Like Brandon said, you can find it at www.BiggerPockets.com/househacking. You can get all the bonus content with that if you got the ultimate version. That’ll include house hacking calculator that I drummed up. It’s got our interview Brandon, I don’t know if you remember doing this-
Brandon: I do.
Craig: We dive deep into Brandon’s house hacking and basically how it got him to where he is today. It includes an eBook that I wrote how to save up for your first house hack. Basically how to save up that first $20,000. It talks about saving your expenses and all that. It was much more to. I really put a lot of heart, my heart and soul into the ultimate package.
Brandon: Didn’t I hear that you did like a video walkthrough of your first house hacks or something like that.
Craig: Yeah actually there’s a video walkthrough of the three house hacks that I’ve done. We’ll show you basically the rent that I got for each, and the mortgage payments and all that and how that kind of compounds over time as well.
Brandon: That’s so cool. Then there’s also a live Q and A. The live Q and A, do you have the date set for that one yet?
Craig: We don’t have it set, but it will be within the first two weeks of it launching. I would say before August 16th or so.
Brandon: All right. If you want to attend the live webinar, the Q and A with Craig, make sure you get the book within the two first two weeks of today. It comes out today, the book does, I believe that these episodes are airing. Get it within the first two weeks if you want to attend that live webinar. Yeah sounds good. Now again, I highly recommend everyone get that book, but we’re not quite done with this show. I think next we want to head into the next phase of our show. But the last question I have though, Craig, before we get to the deal deep dive, I’m just wondering what are you doing after this? What’s your long-term plan with real estate?
Craig: I don’t know. I used to have all these long, five to 10 year plans, all that kind of stuff. I just realized that life changes so quickly that having those plans is almost silly. My goal is to just be as flexible as possible. Anytime that an opportunity comes my way, I’m able to handle it or something comes my way, I can handle it. The next couple of years I’d like to maybe travel a little bit or do something. I’d like to someday have a family and maybe do something that you and David are doing here, and actually just kind of build an empire like that. But I just don’t know, it’s hard to say.
Brandon: What I like about that is stay flexible. Again, house hacking is a great way to stay flexible. Very cool.
Craig: Be flexible.
Brandon: All right will do. Let’s get into the next segment of the show. This is the part, I love this part of the show. It is our deal deep dive. This is the part of the show where we dive deep into one particular deal that Craig here has recently purchased or done something with. Craig, do you have a deal in mind that we can dive deep into?
Craig: Yeah, I feel like we should just do my most recent one, which is one that is not really mentioned in the book, because I wrote the book before I did the deal. There’s lots of content here.
Brandon: Sweet. So first question, what kind of property is it, and where is it located?
Craig: This property is a single family house. It’s a six bed, three bath, single family house located in unincorporated Adams County, which is like this little no man’s land between Denver and Westminster. It’s great because the taxes are really low. There’s not really all that many rules that I have to follow in terms of Airbnb type rules, or rent by the room type rules. That’s where it is.
Brandon: How did you find this property?
Craig: I found it on the MLS. All of my deals I found on MLS, and they all seem to work really good.
Brandon: That’s again one benefit of house hack. Another one is that you can make the numbers work in the MLS because it’s such a cool strategy. How much did you pay for the property? Or I should say, how much was the property, how much were they asking for it? Then what did you end up paying?
Craig: The asking was 390, we went under contract for 390 but there was some things that the inspector caught. We ended up closing at 380. I bought it for 380,000.
Brandon: All right.
David: Is the only negotiation that you use that inspection report?
Craig: For the most part, yeah. Basically some electric was a little junky, and the furnace was old and all that kind of stuff. I said, “Hey, there’s at least $10,000 worth of expenses here.” With house hacking, I don’t really care about getting the best price for it because I would rather just get into it and have another month of saved rent. As soon as I get into that house hack, the timer starts where I can get my next house hack. I could wait and try to save $10,000 which is what, maybe 20 bucks a month or 50 bucks a month or something. But that’s nothing compared to the thousands of dollars a month I’m saving. I really don’t care. I usually just go into the asking.
David: Such a good mindset. So many people focused on winning the battle and lose the war.
Brandon: Yeah that’s true. All right. What about funding? How did you fund this deal?
Craig: I just did a 5% down conventional loan. Very normal from the bank. The 5% down conventional you can use on a single family, you’ll have trouble getting that on the multifamily ones, the duplex, triplex or quad. But you can use the FHA on the duplex, triplex or quad.
David: Beautiful. I know what you did with it; you house hacked it, what was the outcome of that deal?
Craig: Basically the way that works is my mortgage payment on that deal right now is about just over $2100. I am renting the top half out. Basically, it’s three beds, two baths on top, three beds, one bath below. I’m renovating the bottom to turn it into an Airbnb and separating the two. The basement has a separate entrance to the garage. I’m just walling off where the top meets the bottom and it’s totally separate. Now I’ve got a separate entrance, Airbnb downstairs, and that’s going to go for about $2,000 a month at least. I’m renting out the other two bedrooms upstairs for a total of 1550 total. I’m looking at a 3550 in rent coming in on a $2,100 mortgage payment.
Brandon: That’s awesome.
Craig: And I’m living for free.
Brandon: That’s amazing. All right, so what lessons did you learn from this deal? Anything you learned?
Craig: Well, there’s a funny one. I guess we can get into it, so we’ll get into it. One thing you always need to do is screen your tenants and don’t take any shortcuts screening your tenants. I got lazy and got greedy on this one, and kind of got caught with my pants down and ended up with some really shady tenants downstairs. What happened was I was doing the rehab downstairs, and these people were coming to look at the upstairs, but I had already filled the upstairs. I said, “Why don’t you just look at the downstairs and see if you’d like to live there. There will be a construction zone, but just a heads up and I’ll give you a discount on the rent.” They said, “Oh yeah, sure,” and they both loved it. Should’ve been a red flag that anyone who wants to live in a construction zone. They moved in and I had the contractors pulling up carpet and doing stuff down the hallway.
Craig: They said they smelled this horrible smell that they had never smelled before. Something burning. They didn’t know what it was. Marijuana is legal in Denver. It wasn’t marijuana, it wasn’t cigarettes. He just doesn’t know. I went and I Googled the person’s name who was downstairs, and she was on our county’s most wanted list for very hard drugs. I was like “Oh shoot, I’ve got this meth head in my house, and I don’t really know what to do.” Naturally I kind of got a little bit scared, so I left. I got the roommates from upstairs out, I called the police and they were no help at all. They basically just said that if it’s her house and there’s a lease, she actually has the right to smoke meth at her own house. Which I don’t know if that’s true or not, but either way the police weren’t helping. Then I went back to them and I just said, “Hey, you guys have to get out.”
Craig: Basically I did a cash for keys deal. I said, I’ll give you your rent back, I’ll give you your security deposit back, and give you $500 if you can just get out in the next few days. They got out and they’re out now. It was a mistake and I was talking to my friend Chad, because I know very much and I talk about it in the book. I just didn’t even take my own advice that you have to do background checks, you have to do credit checks, you have to be very diligent with every single person you live in your house. But I just got greedy. Felt like it was easy month to month type lease that I let in. It came back to bite me for sure. It was a $1000 mistake. Could have been much worse and I’m lucky to get out the way that I did. But yeah, I mean sometimes they say you have to touch the fire to make sure that it’s hot, the fire is hot. Just again, make sure you do not take any shortcuts screening your tenants.
Brandon: That’s such good advice. People think sometimes like I don’t know, like I said earlier landlording’s not hard. It’s not. But it’s also not something you can just like go and do. Just like, yeah, I got it. It’s like driving a car. It’s not like driving is that hard, but you wouldn’t just jump in the car when you’re 12 years old and just assume you know what you’re doing.
Craig: You have to be careful too. The first day you’re probably be super diligent on, because it’s your first one and you want to be really diligent, but then you start getting more comfortable and more comfortable and you start to relax a little bit. That’s exactly what happened to me is I met these people they seemed really nice, they seemed cool. I was like, “Okay, yeah, whatever. Month to month, what’s the worst that can happen?” Well, that’s the worst that can happen. Just be careful and don’t take any shortcuts. Please learn from that.
David: Yeah, great advice.
Brandon: All right, well that was a deal deep dive. Now we’re going to head over to the next segment of the show. It’s the world famous fire round. Alright time for the world famous fire round. Of course these questions come direct out of the BiggerPockets forums, and we’re going to fire them right at Craig’s face. Are you ready Craig? Watch out. All right he’s dodging.
Brandon: Number one. After you house hack for a year because for those not aware, generally you’re supposed to stay for a year. You don’t have to stay forever, but you’re supposed to stay for a year when you get a owner occupied loan. Any tips for moving onto the next house hack? I’m worried that the bank is not going to approve me for a second mortgage based on my income.
Craig: You have to find a lender that works for you. My lender takes the rent from my property, and counts it as income against my debt to income. I think a lot of lenders will do that, especially if you have leases in place. Basically as long as the deal works, your income should be higher than the debt payment on that property. It would actually put you in a better position.
David: That is why you have to actually claim your income on your taxes. It will catch up with you if you try not to.
Brandon: Yeah. A lot of people they’ll rent out the bedrooms they’ll rent out anything, and it’s like cheating the government and then they go to get a mortgage later. You didn’t make any money.
David: It’s surprising how often that comes out. I think I told you guys, I’m starting a mortgage company. So many people are like, “Well how do you make this income count without me having to pay taxes on it?” You don’t, you pick your poison. You either break the law and don’t get to use it, or you pay your taxes and get to. That’s a very good point. I would say in my opinion, being honest and paying your taxes and allowing you to house hack more properties is far and away a better option for wealth building particularly. All right this is from Laura Heinz in Lawrence, Kansas. How do you keep track of expenses? Also, when it comes to taxes, does it get too complicated to do taxes yourself? I’m thinking I might need to hire a CPA.
Craig: I do have a CPA, and she does my taxes for me, but I still do the bookkeeping myself. My first year, I was just doing Excel because it was pretty easy and the expenses weren’t too high, but after you start getting two, three or four properties, I was just done with Excel. I moved to an accounting software called Xero. It’s like 30 bucks a month. All of my statements get imported into the Xero software and I just allocate them appropriately. At the end of the year it’s pretty easy for my accountant to do what she needs to do to get the taxes done.
Brandon: Very, very cool. All right let’s go with Andrew from Virginia. If you’re house hacking in a college town, how do you set up the rents? Because most people go home during the summer so you won’t be able to collect rent for two to three months. Do you just jack up the rent for the year and then have it super cheap in the summer or what would you do?
Craig: You could just do a 12 month lease. Yeah they can go home for the summer, but doesn’t mean they have to go home for the summer. They could still hang out on campus or whatever, or maybe get an internship or part-time summer job something on campus. I would still continue to do the year lease, but maybe give them the option to say, “Hey, if you do want to get out after nine months, you just have to find someone to fill those last three months that I approve of.”
Brandon: I wonder if you could also give people, because I’m a big believer in giving people options about anything in life. Starbucks tall 50 granted. I wonder if you could say, “Hey, the rent is going to be $1,000 a month, or it’s going to be 1200 for a nine month lease.” Well it works out the same to you, but dumb college kids would probably be like, “I don’t have to pay for three months in the summer. Great.” Even though the numbers you just work it out so it’s exactly the same. I bet you people would be okay with that.
Craig: Yeah you could do that too, to be creative for sure.
Brandon: All right, David, number four.
David: Last question. Does the 1% rule and other rules of thumb apply when looking for a property to house hack or is it different?
Craig: That is a good question. The 1% rule kind of escaped my mind, because I just feel like it’s so different based on each market. If I’m thinking about my math, I mean I’ve got a $380,000 house and my rents like 3,500 and it’s a very good deal. It’s not quite the 1% rule, but it’s close, and I think I’ve got a very good deal. Sure the 1% rule kind of works, but I don’t think it’s set in stone because I know properties that are not quite the 1% rule that are working very good. Again, I think the whole thing, there’s so many ways to spin it, but if you just spin it that way with rents over your mortgage, with some reserves in there you won’t lose.
Brandon: Here’s a good reason why that is too. Craig do you know off the top of your head, what are your property taxes per year on that property?
Craig: It’s about 2000.
Brandon: All right so if you were in Texas, somewhere in Texas, your taxes would be like $8,000 for that property. The differences is four or $500 a month difference in taxes. That’s why things like the 1% rule could be kind of helpful. But they’re also super flexible. Because if you’re in Texas that’s a lot worse deal for you than if you were in Denver, Colorado has lower property taxes. 1% rule again it’s helpful, but it’s super not that helpful because you still need to actually do the numbers, look like what are my taxes 200 a month or 700 a month? [inaudible 00:56:21] 100 or it can be 500 a month. You got to run those numbers.
Craig: If you talk to your lender, he’ll be able to tell you about what your monthly payment will be with principle, interest insurance, private mortgage insurance, everything you need taxes, all of that. I would just get that number and then you can just go look at houses, and you adjust it accordingly based on the price of the house, but it’s not going to change that much.
Brandon: All right, and good answer. All right that was the end of the fire round. Now it’s time for the last segment of the show. It’s our famous four. All right the famous four are the same four questions we ask every guest every week here on the show. We asked Craig these once before, we’re going to ask you again. Craig favorite real estate book?
Craig: I almost don’t want to say the same answer I did a few years ago, but I feel like it’s still the same. Brandon, it’s your Rental Property book. That was the first book I ever read on real estate, and it really got me [crosstalk 00:57:30]. That book really got me going and it got me excited for real estate, and it also introduced me to BiggerPockets.
Brandon: Thanks dude.
David: Great job Brandon, you wrote a book.
David: Craig, what is your favorite business book?
Craig: Favorite business book is going to be either Never Split the Difference, which we had that guy on the podcast. I forget his name Chris Voss. One of the best books I’ve ever read saved me tens of thousands of dollars with a $10 copy of that book. Also, The Four Agreements is also another one that’s really good. It’s a little bit more of a spiritual book but just helps you kind of stay even keeled and was really good.
Brandon: I’ve tried that one like twice.
Craig: What’s that?
David: Who wrote The Four Agreements?
Craig: I forgot the guy’s name. Miguel Diaz or something.
Brandon: Multiple times I’ve tried reading that, I still can’t get through it yet, but I’ll try again. I know that’s what it is. I need [crosstalk 00:58:28] good night moon. Every time I read it, I mean people love that book and I like read it. It’s not bad I just couldn’t like deep I don’t know whatever.
David: I’m amazed there’s a book you didn’t finish. You would read the back of a shampoo bottle. Brandon reads everything. He reads his receipts from the restaurant; he likes to read.
Brandon: Well I’ll give it another shot because I hear it’s good. It’s got a hook. It’s like a TV show. You ever watched the first episode of a show and you don’t watch the rest? Sometimes it just doesn’t hook you yet anyway.
Craig: Fair enough.
David: Craig, what are some of your hobbies?
Craig: I really love to travel. I like snowboarding in the winter. I love to hike. I love to ride my bicycle. Love to just be outside, hanging out with friends. I love to do real estate type stuff. Read, right I mean the works. Is that helpful?
David: I hear you [inaudible 00:59:21] cash and checks. By the way, if anybody wants to listen to the Chris Voss episode we mentioned it was episode 260, two six zero. Thank you Kevin.
Brandon: All right. Last question from me. Craig what do you think separates successful house hackers from those who give up, fail or never get started?
Craig: Just being able to get uncomfortable and have that … what is it called? Basically be able to be uncomfortable for a short amount of time, so that you can take the rest of your life back.
David: Is it delayed gratification?
Craig: Delayed gratification is exactly the two words I was looking for. Yes, thank you. Yeah, delayed gratification, and being able to actually take action on that. Also, just not getting caught up in the numbers and just taking action and just doing something. Because you can sit twiddling your thumbs running numbers all day. That’s not going to get you anywhere. Take an action in getting uncomfortable for sure.
David: All right Curelop, I think you’ve dropped some incredible knowledge bombs on us. I’m very grateful that we have somebody like you to kind of break this down and I know it will change lives. For people that want more Curelop in their lives, where can people find out more about you?
Craig: The best place you could find me is on Instagram. I’m @thefiguy just T-H-E F-I-G-U-Y. You can also find me on BiggerPockets. I’m on Facebook and stuff as well, but Instagram is probably still the best way. You can also get the book at www.BiggerPockets.com/househacking.
Brandon: All right. Thank you Craig, very much. Appreciate it. For everybody else again, like I said, pick up the book. It’s fantastic. David Greene do you want to take us out of this thing?
David: Yes sir. This is David Greene for Craig, the pants hacker Curelop, and Brandon, six foot five of twisted steel and sex appeal, Turner signing out.
Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here. Thanks! We really appreciate it!
To sign up for a free account and start browsing cash flowing rental homes, visit roofstock.com/biggerpockets.
Their high-tech, low-cost online platform lets you track the progress of every single project, and keep more of the money you make. Oh, and by the way, you don’t have to be accredited. Visit Fundrise.com/biggerpockets to have your first 3 months of fees waived.