House Hacking Basics: Where to Find Properties & How to Analyze Deals (Tips From an Expert)

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Recently on the BiggerPockets Podcast, I asked real estate investor and veteran house hacker Craig Curelop, “How do you find a potential house hack? What are you looking for?”

Here’s what he had to say.

How to Find Your First House Hacking Property

BiggerPockets’ own Craig Curelop only started investing a few years ago. But to date, he’s (impressively) hacked three houses, owns several properties, and has added $350K to his net worth—not to mention paid off $85,000 in student loans in less than two years.

BiggerPockets Podcast co-host David Greene and I interviewed Craig to talk about his new book The House Hacking Strategy, and how he’s sprinting toward financial freedom by using this real estate investing method.

What to Look for in a Potential House Hack

So, what does he look for in houses to hack? Here’s what Craig had to say.

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’ve just never really elevated my lifestyle, so I can totally continue to do that.

What I look for in houses is the most bedrooms and the most bathrooms per dollar. In the Denver area, I’m looking for 5-bed/3-baths for about $350 to $400,000. That’s my sweet spot. I know that’s going to cash flow if I rent by the room.

You’re going to cash flow about $1,000 over the mortgage with that kind of property. Also, I want a property where I can have a lot of options. Maybe I can section off the bottom from the top and Airbnb it later on. 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, too. 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 the path of progress is heading. Then, I basically just go 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 that way. I don’t think they’re just going to go around my neighborhood, you know? So, put yourself right there.

I also look for bike paths. I’m still biking to work. I still do all that. And again, that eliminates the whole transportation costs, which is likely people’s second largest expense.

So, by house hacking and by eliminating your transportation expense, you’re saving 50 percent of your income just by those two things right there.

Where to Find Deals

Following up, I asked Craig where he finds these properties. Does he look on the MLS? Or is he more creative about finding deals?

I just go straight on the MLS. I think with this strategy every single deal works. It just doesn’t work for me. Financially, every single deal that has a 5-bed/3-bath in areas that I’m looking that are $350K to $400K, they work. You’re looking at $700 to $1,000 over the mortgage (at least) every single time.

And so then, I just look at the house itself and say, “OK, do I want to live there? Would someone want to live here if I moved out? How is the parking situation?”

All of these kind of things. And 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.

Related: 27 Ways to Find Real Estate Deals

Co-host David Greene chimed in, asking Craig, “Can you define what you mean by the path of progress for listeners?”

Basically cities tend to move in general directions. I’m gonna use Denver as an example, because that’s where I live. The heartbeat of Denver is right downtown. And then if you just go south of Denver, it kind of has already been developed. It’s kind of in the past, in my opinion. The future is north of Denver.

Look at RiNo, for instance. RiNo is 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.

And so, I 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 command the rents. Not quite the same rents that RiNo can command but still well above what I can get for the mortgage.

This is why it’s very helpful to know what the city is planning to do.

For example, the city of Denver is planning to put essentially 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 want a place to live that’s close to their work.

Why Long-Term Strategy Is Important to Consider

Next, I wanted to know what Craig’s long-term plan is with these properties. Say, he buys a single family house, rents out the bedrooms, and lives in one of the bedrooms—everything’s great. He’s making good cash flow and living for free. Then, he gets a girlfriend or a wife or a husband or whatever. He wants to move out.

Maybe he gets a better job in another city. He wants to move out. What would he do then? Just continue to rent out by the bedroom? How would he analyze it?

Related: House Hacking? Consider These Factors First

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. And 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, keep looking, keep looking. You’ll find someone that is willing to do that. It’s probably the thing I’d try first.

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 excess of my mortgage (to have room for expenses, as well). So, the houses that I have will work both ways. But it’s just way more profitable to do the rent by the room strategy.

I want 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 if it’s too much work. And then, I’ll be able to sit back a little bit more.

People always want to know how to analyze, what they should be looking for in a house hack. I tell people the same thing Craig mentioned: analyze it both ways.

Analyze it as if you’re living there, because you probably will (I mean, you’re going to, you’re house hacking). But then also analyze it like you’re not going to live there, because you won’t forever.

So, do you want to buy a property that makes really good sense right now, and then as soon as you move out, you’re suddenly losing 1,000 bucks a month in cash flow? That would suck. So, analyze it both ways. Craig is on the same page.

Hundred percent agree. Also when we are analyzing the deal, a lot of times there’s too many numbers. You have the monthly payment, the mortgage, the insurance, the taxes, the vacancy, the CapEx, all the stuff. So, I am a firm believer of: you need to be a certain threshold over the mortgage for the deal to work. My threshold is between $500 and $1,000 or more.

But that’s going to vary depending on your city. And it also varies depending on the property. On an older property, I’d want a little bit of a higher threshold, because there’s gonna be a little more room for those expenses that come up. Whereas on a nicer property, that’s a little bit newer, you won’t need your reserves 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 all caught up in these numbers. They take hours and hours to analyze deals, when I think it’s easier to literally go into a property and say, “OK, I know I can get about $3,500 for rent for this property. My mortgage will be about $2,200. I’m making $1,300 with a mortgage. That’s a great deal.”

David added that when you actually understand house hacking both from the perspective of 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)—when you see how it benefits everyone—you really wonder why doesn’t everybody in the world do this? Why is this a secret that we have to tell people about? It’s amazing!

How Financing Plays Into Everything

For house hacks, some banks have 3, 3.5, 4, 5 percent down for owner-occupied loans, which means you have to live in the property.

I asked Craig, “Why can’t I just say I’m going to live in the property, get a 3 percent down payment, and then not move into the property? And then secondly, why can’t I just do that every month or every week, over and over and over? What’s to stop me from that?”

Well, bank fraud is to stop me from that. Or mortgage fraud, I should say. And if the bank does catch you, that’s five years in jail. And I think what’s worse, I mean imagine being in jail being next to the guy who killed somebody or whatever. He asks, “What did you do?”

“Oh, I didn’t live in a house that I said I was going to live in.”

You’ll look like a wimp in jail. So, there’s really absolutely no way.

Yeah… but on the positive side, I told him, when you’re in prison, not only do you get your housing paid for but you also don’t have to pay for your food. And no travel expenses, no car expenses. This might even be better than being homeless—if you’re homeless, you still have to pay for food.

“Prison hacking…” Craig said. “I like it.”

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.