All Forum Posts by: Account Closed

Its interesting how restrictive the lender can be to creativity. As for neighbours I'm talking about an apartment building, a commercial enterprise, not a house.  We all know how neighbours can be a headache for ambitious house hackers!  I don't see the house hacking mentality applied to commercial areas much.  Like co-working rentals, storage rentals, short term rentals, etc.  The key is to be very flexible and adapt to the market's demands in your area.  Most real estate owners are older and stubborn.  The younger ones seldom have any money to invest.  A quandary.  

I was wondering if any apartment building owners ever considered converting their units so the living room becomes a bedroom.  This would only work if one didn't need to cross the living room to get somewhere else.  I find a good percentage of layouts offer this option.  I'm living in one right now.  For 1 bedroom units this results in a dramatic increase in revenue in most areas.  In my area 1 bedroom apartments average $750 if they're not recently remodelled.  But rooms average $550.  And the living room is usually much larger than the bedroom!  So say $550 (BR) + $700 (LR) = $1250 from $750 before. 

Are these percentages similar to your area?  Rooms rent for about 2/3 of 1 br apartments? 

But what if even the kitchen was turned into a bedroom?  They're usually smaller so the gains are less but then there's the bathroom.  By creating very nice common kitchens and bathrooms shared by more people another $500 (at least) could be extracted from the same space.  Maybe leave one small  sink for washing/cleaning.  Sinks do take up a lot of vertical space though.  Anyway, now you're at $1750 from $750.  But you do need to allocate space for those common kitchens and bathrooms and they have to be nice and kept pristine.  So people that clean up after themselves are crucial.  

When apartments are bigger often their price doesn't rise much. In my area that same $750 1 br would be about $900 if a 2 br. The problem is its not being rented to maximize revenue because each bedroom is not being rented to individuals.  I see that 2 br as $500 + $500 + $700 (LR) = $1700.  Using the kitchen and bathroom space (if they're together and there's not a load supporting wall between them), add another $500.  Of course as the apartment gets bigger the gains for converting the kitchen/bathroom get much smaller.  

A 3 br in the same building would be about $1100.   Of course being its a 3 br the LR is probably a lot bigger so say $800 for that.  So $500 + $500 + $500 + $800 = $2300 instead of $1100.  

What I'm curious about is rent controls and how they would apply to individuals renting each room.  Would they add up the revenue for the entire space and gasp and refuse this?  If so then you couldn't do this there and you'd find an area that welcomes housing creativity.  

Obviously this is for single people that are rarely home.  It might be useful to combine this with a food serving arrangement where people could order what they want to eat before they get home and it could be prepared for them at low cost.  Some people just hate preparing their own food.

There's another angle for getting the kitchen out of the main living space:  Overeating.  If no food is there its a lot easier to eat less.  Of course people can always bring in snack food but if they're trying to change they won't do this.  The point of this is to reduce the temptation problem.  And pretty much everyone sometimes eats when they don't need to.  We're moving the food away, making it less accessible.  

I heard this may be an issue.  Renting each room to unrelated people might make your insurance provider more uneasy causing rates to rise.  

Quote from @Scott Trench:

Why not try for a "house-hack"? You might be in prime position to Airbnb out your primary residence while you are on the road. 

Could be that if you are on the road 150 nights per year, your primary residence could generate a ton of income. Might be a way to "big rig" the odds in your favor (I'm not sorry for my excellent pun"). 

Great idea!

Isn't it a lot cheaper a little inland there?  By selling their present house they'll be able to get a large house inland and occupy a tiny percentage of the total meaning a terrific investment.  House hacking is really all about how much space do you take up in that house.  Not many people talk much about this but rental income is what pays your mortgage and maximizing that means the mortgage is cleared off much, much sooner.  It means renting each room to a single individual, never couples or families because they argue and make noise and you're packing a lot of people into a smaller space than they're probably used to so it needs to be ultra quiet.  Also making sure the basement is maximized by partitioning the space into the most profitable sizes in that area.  By being unconventional you can double your rental income.  As long as your inline with our zoning laws there of course.  Neighbours can stifle many a creative real estate idea....

Quote from @Colleen Keenan:

 I am a new agent in Southern California and I have a friend who wants to purchase an investment property locally where we live (redondo beach, hermosa beach, torrance). This market is very expensive and she plans to finance the purchase, but when I run the numbers it is around $2k of negative cash flow. How can I make a purchase in So. Cal near the beaches work for her without significant negative cash flow and still allowing for financing use?

The first rule for house hacking is combining lower land cost with higher rental demand.  Obviously you picked an impossible location for this.  Sure it can be done but the mortgage will take forever to pay off.  They'll probably spend more on the interest than the property and that makes no sense at all. 

Quote from @Jordan Santley:

Hello!

My wife and I have around 22K saved up and we want to try to house hack.  We are both brand new to real estate investing.  We have a baby on the way so are mostly looking at multi-family homes.  The real estate marked in the Chattanooga/Cleveland TN area is crazy right now and everything is up by about 40%.  Obviously we would need to look for a great deal and that leads me to my question:  Is house hacking only worth doing if you make a profit or break even?  My wife thinks that even if we have to pay $300 out of our pockets for the mortgage, then it's still a good idea to do.  I know it would be good to have as a rental when we move out after a year or two, but we wouldn't have any more money but our savings to put towards another investment later if we weren't making a profit.  I appreciate any insight!

Multi family is terrible.  It means you're renting to one family for one unit instead of several individuals maximizing the space by renting out the living/dining/rec rooms as bedrooms.  Then there's the basement.  If you have the ceiling height it must be used.  You need to retrofit that as soon as possible.  You have a young wife and child coming.  So just take one floor for yourself.  Its not maximizing things but its still pretty good.  Instead of a multi family duplex/triplex consider a bigger house with more rooms.  If you can occupy a small percentage of the total and you're in a reasonably priced area with strong rental demand you'll live for free easily.  The challenge is living for free AND paying that mortgage off fast, like in 5-10 years.  Because we have no idea how high interest rates are going.  I'd want to lock in my rate as long as possible and pay it off as fast as possible.  

Quote from @Mac Nielsen:

I am new to investing and have 0 deals as of now. I am a Truck Driver and looking for a good Remote Strategy  to get started. Not sure if I like the Wholesale Strategy. I was thinking I just need to pick a spot and build a team to do a brrrr. Any input is appreciated and welcome. Thank you

When you say "truck driver" does that mean you spend a lot of time away from the property for days at a time sleeping in our rig? If so that changes a lot.  It means you may not know what's going on when things go south at your investment.  But it also means you are not stressed so much about things when you're away.  But if you're stressed it means problems haven't been resolved which should be.  Generally you want to be close to your investment.  The more people you cram in there maximizing rent like a good house hacker, the more tension and friction there will be that will need to be resolved calmly by you.  

Quote from @Travis McGray:

Quote from @Scott Trench:

If I earned a median income and didn't want to house-hack, I'd find a partner to help me finance the purchase. For example, perhaps you could find a person to guarantee the mortgage, provide the down payment, and they receive a preferred return of 8% per year. 

For example, the financing partner provides a $100K down payment and a $400K loan on a $500K duplex. 

The financing partner receives an 8% return ($8,000) from the property prior to the new investor getting any profit. 

After that, additional profits are split 50/50 between the financing partner and our new investor. 

This allows the financing partner to get a good return and have protection of capital, while heavily incentivizing the new investor to get the financing partner's money back, and provide material upside. 

For good measure, the new investor could put in $10,000 of their own capital to show that they are going in with what they can reasonably afford, so that they have meaningful skin in the game as well.

This is an awesome example! How do you go about finding someone to be willing to take on a brand new REI and go in with them on something like this?

I think its called daydreaming.  That's a lot of risk for a mediocre return.  But maybe there are people that don't want to invest in the stock market and want a hands off investment.  

Quote from @Alicia Marks:

Welcome to our question of the week! This is based of a Facebook discussion about wanting to hear more average income earners accomplishing their real estate goals. If someone wants to get started in becoming a real estate investor, makes around $50k per year and has saved $10k, but doesn't want to househack, what would you recommend they do? 

Let's hear those great ideas and life experience!

Why would you even discuss why people do ridiculous things?  House hacking is the #1 way of getting ahead financially, at least while interest rates are relatively low.  Nothing comes close when you maximize your rental income by renting to individuals (never couples/families/children) AND live there free yourself so you're right on top of your investment.  And if they've only saved 10k what in the world are they going to do with that?  I'd say look at their expenses and where they are wasting their money.  Earning that much year after year and only saved 10k?  They have huge problems with their impulse control probably.  First that needs to be improved.  If they can't manage 50k how can they manage a real estate portfolio?  They have way bigger problems than housing.