All Forum Posts by: Isaac Bartels

Look this up with a search here. It gets asked every week. The general consensus here is NO. 

For instance, answer this for me. Why would I, as a landlord, want to rent one of my nice little houses to you just so you could re-rent it to other people (who I don't know and have not vetted) so you can make a lot of extra money....? See how it sounds?

@Isaac Bartels all other things being equal, a house hack is a better strategy for a beginning investor who doesn't have much prior experience (and who has limited cash).

Why? Because, house hacking is comparatively simple and beginner-friendly (and therefore has the highest likelihood of success), but strategies like BRRR'ing, flipping, wholesaling, etc. are far more complicated, and have a far higher chance of failure because they involve so many "moving pieces".

I always use this analogy: would you tell a beginner skier who has zero experience to ski a double black diamond (the most advanced terrain) for their first run? (obviously, no; a beginner could easily get themselves killed on double black diamond terrain!). Beginners should start off on beginner terrain, where they actually have a chance to learn and succeed. A house hack is like that beginner run (but BRRR'ing is more like a black diamond).

With a house hack, you can make money while learning the essential skills you'll need to succeed in RE investing (e.g.; how to analyze properties, how to find an investor-friendly agent, how to engage in a strong due diligence process, how to screen tenants, how to manage the property, how to build a network of contractors, plumbers, electricians and other pros, how to manage the book keeping of the property, etc., etc., etc. If you want to succeed in RE investing, getting this experience will be critical). So, you can make money and learn invaluable lessons with a HH, but it's typically a much lower risk strategy than BRRR'ing, flipping or wholesaling--which are strategies that (when executed poorly) can easily bankrupt a beginner.

Moreover, house hacking can be very lucrative, and there are multi-millionaires who built their fortunes on repetitive house hacking! Although it's a strategy that's good for beginners, there are plenty of very experienced RE investors who continue to HH.

Plus, if you do decide to BRRR a property in the future, you'll be much more prepared to do it if you have a HH or two under your belt--a ton of the lessons you'll learn from a HH can be used to successfully execute a BRRR!  ...in fact, I'd say that a HH should be a necessary prerequisite to a BRRR for most folks!

Now, having said all that, house hacking isn't necessarily easy (if it were, everyone would do it)...it's just easier than the more advanced strategies...House hacking still takes significant due diligence, skill in analyzing the market and the property, time and effort to learn about tenant screening and property management, the ability to anticipate appreciation/depreciation trends, etc., etc., etc....and even with lots of skill and preparation, things will still go wrong (vacancy, plumbing leaks, bad tenants, etc.)--but that's the nature of the game. As James Brown sang: you gotta pay the cost to be the boss.

Good luck out there!

 Good Morning Isaac, 

Solid question, however i would "reframe it". The question i would ask, is how could i do both? 

I got started with a househack of a triplex in 2016. Prior to purchasing that home i was paying 1100 per month to stay in a dope 2 bed 2 bath loft apartment next to a pool in Louisville, Ky. I listened to bigger pockets, read books and decided to start with a house hack. I purchased a triplex for $190k, lived in one unit rented the others out and effectively covered my full mortgage with the other rents ($1100 in savings per month compared to renting). This triplex was not in the best condition and the units needed updates, so i systematically went about updating units (i.e. replacing carpet with LVP, installing granite countertops, new heating systems, etc) as issues popped up or as tenants turned over. Fast forward to 2021, i sold that house for $310k and the rents had increased from $1400 (when i was living in one unit), to $2200 (when i moved out of that unit), to $2850 when i sold it. 

SUMMARY: 

Househacking a home that needs a few updates will save you on rent costs and allow you to reinvest that money into adding value into the home you are staying in. All while limiting the risk of being a new investor working to BRRRR a home in a market that has shifted into the favor of buyers and is not on an untethered rise as the last 2 years. Also, can't beat a 3.5% downpayment. The $5000 i put in to acquire that triplex under FHA in 2016, allowed me to walk away with a 6 figure check in 2021.

If you do house hack, you're going to be a landlord AND a neighbor so the dynamic is a bit different than being just a landlord.

In my opinion you need to develop a good, polite/ respectful relationship with the tenant, but also establish clear boundaries. My wife and I lived with our young son in 3 different properties so having a safe environment for our family, being good neighbors and balancing the business side was important to us. 

Our management philosophy is "firm, but fair". By that I mean that I mean:

1) We have strict tenant qualification requirements that we don't deviate from (income must be 3x rent, 1 month security deposit, solid employment, credit score, no felonies, etc.)

2) We lay solid ground rules upfront so everyone is on the same page, like no drugs, late night partying, loud music, locking up common areas, security, etc. 

3) At the same time we like to be friendly, personable and be flexible on things that we can accommodate. Check in on things, develop the relationships, over communicate stuff like maintenance requests, rehab projects, etc.

4) Finally some small nice gestures go a long way like sending a small gift card to your tenant to thank them for shoveling the side walk, buying them a coffee, etc. One of the guests on a recent BP podcast episodes talked about this concept and I agree wholeheartedly in the phrase she used that "tenant turn over kills cashflow". If I can spend $20 on a gift card once in a while and check in to see  if a tenant needs anything or offer to swap out a hard to reach light bulb  to keep them happy and satisfied I'm more than happy to invest in that.

I'm a big fan of house hacking. We've done it 3 times.

With a hack you can get into a multi-family property with little money down, reduce your cost of living, gain equity and experience doing small projects on your own property. After a year or two of saving and tapping into your equity you can do it again.

You mentioned student debt above...Just a side note, I had around $40k in student debt and paid it off in about 2 years. My personal preference is to buckle down and pay off the student loan debt ASAP, then use the money that went towards the student debt to save for an emergency fund and down payment so you start investing in real estate. For me personally it's been very freeing to be done with student debt and once I was done paying my debts it's like I got an immediate raise overnight. Just something to think about.

 

 Remember that lenders don't care about how much student loan debt you have. They only care about the monthly payments. That's why I bought my first house hack before paying off my student loans. Best decision I ever made.

With BRRRRs, you need capital or access to it. The idea is to buy fixers that wouldn't qualify for traditional financing. So if you are limited on cash, then maybe BRRRRs don't work for you.

if you want to move that often then yes for sure!  I did that prior to having a family - now we live in a house that has a detached accessory dwelling unit out back so we are still house hacking but staying put for now 

Given the above information house hacking is the only option. You can't leverage your way through a BRRRR.

How much cash are we talking? Generally speaking, house hacking is likely to be better because you have more control over your costs (rents going up for example). But if there is a fantastic BRRRR opportunity that help you get into your house hack faster, than that might work as well.