Forget the Dream House: These 3 Alternatives Will Buy You a Dream Life Instead

by | BiggerPockets.com

The young couple had their eyes glued to the computer screen. The beautiful home staring back at them made their hearts flutter. It was ready for move-in, in the right school district, and checked many of the other items on their “dream home” checklist.

“Let’s move fast! Call the agent so we can schedule a showing and make an offer before someone else does!”

Yes, it was a stretch on their budget. But the interest on the mortgage was historically low at 4%. With a 20% down payment, their loan would still fall below their pre-approved amount from the bank. The interest was deductible, so the extra expense would actually “save” money on their taxes.  And it was certainly better than throwing money away on rent, right?

And beyond all of that, they deserved a wonderful home. They both worked stressful but lucrative jobs. And with plans for kids and a family, didn’t it make sense to buy the perfect nest for a growing family? After all, this home would produce many happy memories for years. And happiness and family come first.

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Housing Dream or Nightmare?

This isn’t an abnormal scenario for young home buyers today. The details will vary, of course. But the common themes are these:

  • Stretching financially to buy the right home
  • Justifying the “investment” for health, happiness, and visions of family bliss
  • Shackling yourself financially to one housing decision for MANY years

As you might imagine from my title, I don’t see this as a dream scenario. In fact, especially for home buyers in their 20s and 30s, I see it as a nightmare.

It’s a nightmare because this couple missed out financially on MUCH smarter housing opportunities. With a little patience, creativity, and forward thinking, they could have used smarter housing choices to build enormous wealth. And this wealth would have created incredible life options for themselves.

But instead, they missed out. They’re stuck with their dream house. And while they may enjoy the home, their finances and careers are fixed on a one-way path.

Here’s how.

Freedom or a Rut—It’s Your (Housing) Choice

What’s the typical path look like after that big home purchase?

Work, mortgage payment, work, mortgage payment, work, mortgage payment.

Forget those youthful dreams of freedom, excitement, flexibility, travel, and doing work that matters. Practicality rules the day for the next few decades. Yes, you may be comfortable. But “comfortable” over a long period of time is another word for a rut.

Robert Kiyosaki famously calls this rut the rat race. One of my favorite financial books, Your Money or Your Life, calls it “making a dying.”

The rut makes your choices for you. You work a job because it earns the most money. Your bills get paid. You enjoy your Netflix subscription on the weekends. And you save that 10% in a 401k so that you can retire someday.

Not awful, right? But is it excellent? Does it make you excited to get up in the morning? Are you actually doing what matters in your life? Or does your work-mortgage rut consume all of your precious time?

My mission as a writer and the purpose of this article is to help you avoid big financial ruts. Money may not be the most important thing in life, but it sure does keep us from the things that DO matter.

So, it makes sense to learn to win with your finances. And your housing choice is the best place to start.

In the rest of this article, I’ll share several smarter, investment-oriented housing choices you can make:

  1. Live-in flips
  2. House hacking
  3. Live-in then rent

Along the way, I’ll also show you the enormous positive difference these choices could make in your life.

But first, let’s look at the true costs of purchasing a dream home.

The True Cost of Your Dream Home

One of the most popular articles ever on my personal blog was called “How to Get Rich With Embarrassing Old Cars and Ugly Old Houses.” The main point was to pay attention to your big expenses like housing and automobiles. But the real lesson of the article was something called opportunity cost. Opportunity cost simply means:

One dollar spent today loses its earning ability forever.

So, opportunity cost tells you to spend less today and invest more—at least if you want to build wealth. And it turns out housing is one of our biggest expenses. It leaks more of our personal dollars than almost any other source.

A U.S. Bureau of Labor Statistics report for 2015 shows that 19.2% of the average U.S. household’s expenses were dedicated to shelter. Canadian households’ average shelter expenses were even higher at 28.9% of household expenses. And many high-priced locations get worse than that.

This means if you’re serious about winning with your money, you should focus a lot of energy on either reducing or optimizing the return on your housing expense. And this is especially true during the first 10-15 years of your working career.

Related: How I Went From $0 Net Worth to Qualifying for $1M in Real Estate Financing in 2.5 Years

The question, of course, is HOW? Which housing choices will waste the least money and build the most wealth?

I’m glad you asked! Let’s see.

Treat Your Home Like an Investment

Unfortunately, most people make the goal of their housing choice to find, well, a home. That was the mistake the couple made in the beginning of the article. They bought their dream home, but it was not a good investment compared to their alternatives.

It’s not that they couldn’t EVER have their dream home. They just tried to get it too soon. Remember, it’s about timing and opportunity cost!

The couple didn’t realize that a home where they sleep at night could also be an investment that makes them money.

And I know what you’re thinking: Your home is important. It’s the relaxing place you come after work. It’s a haven. Your kids need a safe, comfortable place. It contributes to your happiness.

Come on, Chad! Do I really have to sacrifice my happiness by turning my housing into an investment?

But this is where thinking different comes in. You don’t have to make your home an investment for your entire life. Even 5-10 years of prioritizing investing instead of finding the perfect dream home can make all the financial difference in the world.

Just like budgeting, saving, and other forms of investing, the so-called “sacrifice” you make with housing pays enormous dividends for the rest of your life. And if you make it a game, turning your home into an investment can also be a lot of fun!

I know firsthand. I’ve been having fun with it for 15 years!

Now, let’s move on to the first of five smart home ownership strategies.

1. Get Rich With Live-In Flips

Two friends of mine, Mr. and Mrs. 1500 from the blog 1500days.com, are millionaires. They trace a big portion of their wealth back to their choice to do a series of live-in flips with their homes.

What is a live-in flip?

It’s simply buying and moving into a house that needs work, living there for at least 2 years (I’ll explain why in a minute), and selling at a higher price for a tax-free profit.

In the United States (and also in other countries like Canada and the U.K.), homeowners who follow these rules can sell their house for a profit without paying taxes on the gain. This tax exemption is capped in the United States at a gain of up to $250,000 for an individual or $500,000 for a couple filing jointly. The IRS rules also state that you must live in the home for at least 2 out of the 5 years before you sell it.

Let’s look at an example.

Example of a Live-In Flip

Let’s say you buy an older house in a good neighborhood for $200,000 that needs about $50,000 in upgrades and repairs. You use a popular Fannie Mae Homestyle Renovation Loan to fund 95% of your purchase PLUS remodel costs.

In other words, you borrow $237,500 out of the $250,000 total costs. Cash out of your pocket is only $12,500 plus closing costs. Let’s call your cash investment $15,000.

You move into the house after closing. It’s livable, but the kitchen, baths, layout, flooring, paint, and cosmetics are all dated. Over the next 6 months, you live with dust while you and the contractors make the house beautiful.

Then for the final 1.5 years, you enjoy your beautiful, renovated home. And right after two years from the original purchase, you put the house on the market and sell it for $350,000.

Ignoring commissions and closing costs to keep things simple, you make a $100,000 gain ($350,000 – $250,000). And this money goes into your bank account with no taxes owed!

Use Live-In Flips to Accelerate Your Financial Freedom Plans

You just saved $100,000 after tax in two years. And this does not include the equity from your down payment and any principal pay down of your mortgage. So, what’s next?

The live-in flip worked once, so why not do another? And another? Six years later, you might even own your home free and clear of debt.  Now you could relax and stay put in your favorite home forever.

Or you might do several live-in flips until you’ve built $500,000 dollars in wealth using your housing. Then you could invest like blogger Jim Collins in simple stock index funds. With the addition of other savings you’ve built over the years, you might already be ready to achieve financial independence.

You could also follow my favorite path and use the $500,000 of wealth to buy a small, easy-to-mange portfolio of rental properties for your early retirement. With the right rentals, a portfolio of only five units could produce $3,000-4,000 per month in net, spendable income. How would that monthly income change your life?

With your life now simplified financially, anything is possible. You can do what matters. Travel. Start a job or business that you love. You could even live in Ecuador with you family for a year (like I’m doing in 2017).

The main point is that an efficient wealth building tool like the live-in flip shortens the time to your financial goals. It does this by turning a typical liability, your housing, and converting it to an investment.

But live-in flips aren’t the only awesome housing tool! Now let’s look at choice #2—house hacking.

2. Live For Free & Build Wealth With House Hacking

Soon after graduating from college, I began a business buying and selling real estate. Things weren’t always easy. Cash flow was up and down like a roller coaster for several years.

Intuitively, I knew that I needed to keep my housing expense to a minimum so that I could survive. I started by living for free in the spare bedroom of my friend and business partner’s house. When I had cramped his style too much, I decided I needed to go off on my own. But I still wanted to live cheap or even for free.

My solution? House hacking!

House hacking is a strategy where you use your residence to generate extra rental income. Typically this means living in a duplex, triplex, or 4-plex building, and then renting out the spare units. But creative house hackers also rent out spare bedrooms in houses, garage apartments, basement apartments, small guest cottages, boats, RVs, yurts (yes, it’s true), and mobile homes.

If you can dream it and your local government will allow it, you can rent it. And that extra income can cover some or all of your housing expense.

Let me share an example of my first house hack.

My First House Hack

My hometown of Clemson, South Carolina is a small university town. A friend of mine told me about a run-down 4-plex property that was vacant, neglected, and recently foreclosed by a local bank. It was so ugly, someone had spray painted “Merry Christmas” across the entire front!

Where others saw ugly and smelly, I saw home. I bought the property using a combination of local bank and private loans, fixed it up, and moved in. After six months and with the building beautiful and fully rented, I refinanced with a long-term, owner-occupant mortgage (this was a BRRRR deal before I even knew the term!).

For full details of my deal plus step by step instructions to find, finance, and analyze your own house hacking deal, see Brandon Turner’s awesome article on house hacking 101 here on BiggerPockets.

But for now, let’s look at the financial results my house hack gave me.

Financial Results of House Hacking

After I rented my 4-plex and refinanced with a long-term mortgage, here were the financial results:

  • $0 out of my own pocket (because of the refinance)
  • $1,200 per month in rental income ($400 per unit x 3)
  • -$1,105 per month in total expenses (includes taxes, insurance, maintenance, vacancy reserves, etc.)
  • $95 per month in POSITIVE cash flow
  • $35,000 equity ($155,000 new value minus $120,000 total investment)

Not every house hack works out this well. I’ll admit this was a great deal. But the same principle works with any house hack. You can use entrepreneurship, creativity, and rental income to reduce or eliminate your housing payment.

What could you do with the savings from reducing or eliminating your housing payment? Pay off credit card debt or student loans? Start a side-hustle business? Save for a down payment and more real estate (my favorite)?

The answer is all of the above! Reducing your biggest expense opens the door to all sorts of financial opportunities. And house hacking has another huge benefit. After a few years, you can move out of the house hack and keep it as a positive rental property. Because you carefully remodeled it and borrowed safe, owner-occupant financing, the building can turn into an outstanding long-term investment.

Now, let’s look at smart home ownership choice #3‚live-in-then-rent.

Related: Am I Missing Something, or Is Real Estate Investing Really Not That Hard?

3. Live-In-Then-Rent—Turn Your Home Into a Rental

You’re probably beginning to get my pattern now: Don’t just live in a house because it’s beautiful, comfortable, and has nice neighbors (although those are fine). Buy your housing based on its potential investment qualities. Save your traditional dream of home ownership for later in life when you’re wealthy (or never).

The previous two strategies are my go-to recommendations. Live-in flips and house hacks are probably the most profitable ways to own a home. But sometimes neither make sense, either because of personal or market limitations.

So, a third alternative is to buy a house, move into it, and later convert it into a rental. I call this a “live-in-then-rent.”

This is different than a typical housing purchase because it must meet strict financial criteria. No longer is the house affordable because your lender tells you it is. The house is affordable if you could move out, rent it, and still have positive (or reasonable) cash flow.

This means you likely won’t buy the 3,500 square foot luxury home in a fancy neighborhood. Instead, you’ll buy a comfortable, safe, and affordable home where the rent-to-price ratio is more reasonable.

Let me explain with an example of my own live-in-then-rent.

My Live-In-Then-Rent Example (With Before/After Pictures)

Remember my house hack? I loved living in my two bedroom apartment #2. My wife even loved living there for a few years after we got married.

But then we decided to have kids. And for some reason, likely out of irrational animal nesting instincts, we HAD to have a house, a yard, and more space for our soon-to-arrive child.

But we were still on a path to financial independence? So, what to do?

We decided to buy a fixer-upper house in a nice but affordable neighborhood. And by fixer, I mean UGLY. The walls were eaten up by termites, it smelled, the layout was awful, and the crawl space had standing water. You can see a detailed case study of this property on my BP member blog, but for now here were some before pictures of this beauty.

rent house appreciation - before - front rent house appreciation - before - back rent house appreciation - kitchen - before rent house appreciation - bathroom - before rent house appreciation - before - back 2 rent house appreciation - before - termite damage rental house appreciation - before - electric service rental house appreciation - before - crawl space

Now, don’t think you need to buy something this bad. But remember? I like houses ugly (and at good prices). The uglier it is, the more likely you’ll make a good deal.

We paid for all of the repairs except painting, which we did ourselves. And then we moved into our nest. Here were the after pictures. It’s not shown here, but within a few years, we also replaced the roof shingles.

rental house appreciation - front rental house appreciation - Kitchen - after rental house appreciation - Kitchen - after 2 rental house appreciation - living room - after rental house appreciation - master bath

For the HGTV remodeling show addicts out there, you may notice that our remodel was not extremely fancy. We did fix all functional issues, including new wiring, plumbing, water issues, refinished floors, etc. But the new cosmetic finishes were basic and functional. This was all about understanding our market and our exit strategy. We planned to rent this house someday after moving out, so we only made repairs that we thought could earn a return on investment.

We loved living in this house (and even consider moving back into it some day), but the important part for this example was its contribution financially. Let’s look at the numbers.

Related: Meet Tim: How One Newbie Investor House Hacked a Duplex With No Prior Experience

The Financial Results of Our Live-In-Then-Rent House

For many of you who also attempt to buy a fixer-upper as a residence, the best loan options are probably programs like the Fannie Mae Homestyle Loan or the FHA 203k Renovation Loan.  These loans allow you to borrow 95% or more of the purchase AND remodel while still getting a low-interest rate and avoiding a second closing for a refinance.

In my case, I was able to negotiate seller financing with a small down payment from the man who sold us the property. Our monthly payment to him was only $400 per month. But we did also invest over $40,000 of our own cash for the renovations.

While living there, we enjoyed a reasonable monthly payment for our budget. But two years later we moved out (we found another fixer upper and we had another baby on the way!), so we rented the house out. The numbers as a self-managed rental looked like this:

$950 per month in rent
– $300 per month in operating expenses (taxes, insurance, maintenance, permits)
-$400 per month mortgage payment
= $250 per month positive cash flow

But the best part of live-in-then-rents is that they usually get better with time (in a good location). By the time our first renter moved out 5 years later, our new rent was $1,200 per month. This little house was turning into a cash cow and another great long-term investment!

Rethink Your Dream Housing

I’ve tried to make a case in this article to turn your housing into an investment instead of simply buying the first “dream house” that comes your way. This is a way to turn your biggest expense (housing) into an asset that makes a profit (or at least reduces expenses).

Is this path for everyone? Of course not. The three strategies I’ve shared require some work to find, fix up, and then cash in on your housing profits.

But these aren’t the only possibilities for smart housing. There are many more variations I couldn’t cover here. In some markets, it might even make sense to simply become a renter for your primary residence and use your down payment and monthly savings to invest in real estate or other assets somewhere else.

The point is to think outside the box. Don’t let society’s pressure to get a “dream house” early in your career trap you. Instead, think smarter and invest in a dream life instead!

I hope you’ll choose to make financially smarter housing choices. And I hope you’ll help spread the word! I’m trying to make this concept a movement. Let’s take the message to as many people as possible!

Best of luck!

Have you ever done a live-in-flip, house hack, or live-in-then-rent? How did it work for you? What do you think about the housing debate? Which side do you fall on—own, rent, or turn housing into an investment?

I’d love to hear from you in the comments.

About Author

Chad Carson

Chad Carson invests in Clemson, South Carolina. He also writes at coachcarson.com about using real estate investing to retire early & do what matters. For practical advice each week — join his free newsletter at coachcarson.com/newsletter.

84 Comments

  1. Tom Quist

    Chad you cannot ignore commissions and closing costs when selling your house in a live in flip. Your $100k “profit” is going to be more like $72k when you calculate 6% commission fees and 2% transaction costs off the $350k sales price. That is real money that will never be seen again. And if you think that magically your $200k house will sell for $350k in two years you are going to be in for some lovely surprises on your journey to repeat this a few times over the years. The market will be different every time and all it takes is one correction and your are back to square one. And principal pay down after 2 years? Really? Is that $2k gonna be a game changer? You are exposing yourself to a lot of risk for a potentially decent game but thinking you will win every time is playing Russian roulette. Better to find a place to rent, invest then money you would have put as a down payment in cash flowing RE or index funds, save 50% or more of your income, and lower your risk substantially while attaining financial independence.

    • Chad Carson

      Tom, I think I made it clear you can not ignore closing costs and commissions. The point was to make the numbers round and simple. Whether it’s $72k or $100k – the point is that it’s tax free.

      And this isn’t Disney World. No magic necessary. What is required is hard work searching for properties and neighborhoods with value-add potential. The higher value would be determined by comps before hand – just like any other flip I or anyone else here on BP has done.

      Can there be surprises? Of course. This is entrepreneurship. Things won’t always go as planned. But can you mitigate risk with location and property selection. Of course.

      And index funds are less risky over a 2 year time horizon? Really? To each his or her own, but I’ll sleep much better at night with a well-selected, value-add potential, single family house in a good location with a fixed rate mortgage.

      And nothing precludes the live-in flip buyer from saving 50% of their income TOO. This is just to add more fuel to the fire and get to financial independence even faster.

      Thanks for the comment.

    • Brandon Hall

      Tom – I’m not seeing how live in flips or house hacking provide much risk at all. Instead of buying something that can’t be afforded, Chad buys property that looks like crap, for cheap, renovates it while living in it (again, cheap), and eventually rents it out where the tenants cover the monthly costs.

      Along the way, he’s added equity and built another income stream.

      That’s pretty low risk in my opinion.

      Word of advice: you should probably ask Chad what his net worth is before you bash his strategy of obtaining financial independence. I’d bet it’s much higher than you believe.

    • Chad Carson

      Thanks, Andrew. Even a practical form of minimalism that only lasts for a period of your life is beneficial. People can still have a dream house later. But a lot of us find the dream life style of flexibility and unlimited possibilities is even dreamier than a big, cumbersome house. To each his/her own.

  2. Michael Gutierrez

    I’m 24 and hope to follow these strategies. Being a first generation American with no one to turn to for RE i tend to get paralysis by over analysis but I hope to make some serious moves within the next year or two. Thank you for the wonderfully written article. God bless!

    • Chad Carson

      That’s awesome, Michael! Good for you at 24 thinking about how to improve your life! And you’re in the right place here on BP for support. Keep learning, keep asking questions, and make sure to follow the advice in this article and make smart choices with your housing! Good luck!

  3. David Krulac

    Chad,
    Thanks for the article.
    I house hacked my first property with roommates. I’ve lived in and then rented twice, getting ready for the third, and getting ready for a live in and rehab. I agree and would recommend all three approaches.

  4. Justin Young

    Very interesting strategies. I’d like to try this but Hawaii market is so expensive, I’m not sure if this will work. And the places that would work, no one would want to live there afterwards due to higher crime rates, not so great schools, etc.

    • Chad Carson

      Hey Justin, there is no doubt that house purchases in general are more difficult in higher priced markets. From my conversations with others, house hacking with an accessory dwelling unit (like a guest house, basement apartment, etc) attached to a regular house is a good niche to look for high-priced markets. I’ve also know people to buy 2-3 bedroom condos and Airbnb rent the extra bedrooms.

      Study the market some to see if those might be possibilities. And I would never house hack in an area I feel unsafe. And don’t be afraid to rent on the cheap while you’re looking for the right place. When I started, I lived in a friend’s spare bedroom until I found my own place. And renting early on is not the end of the world. It’s better than buying an expensive house that limits your options and eats your money.

  5. Travis Zappia

    Amazing article. Loved reading all of it. I wanted to pose a couple questions that I hope you might be able to give some advice on for me.

    My Current Situation: When moving to the Orlando area in August of last year I knew I wanted to purchase a home instead of renting like I did in PA. When beginning the home search I got approved for a loan up to $500k which made me immediately second guess wanting to spend $150-200k on a home to $280k+. I ended up spending $290k on a home. At that time I had no idea what I was doing but I have a good job and purchased strategically in a really nice area having the best schools in and knowing it.

    Now moving forward to late last year and early this year. I caught the real estate bug after reading Rich Dad Poor Dad. I became engulfed in BP, reading every day and investing in my education reading books and going to meetups with local investors. I have been looking for homes with a real estate agent to purchase, but the market is extremely competitive. In the meantime while my hunt is still on, I began house hacking the new home I purchased! I had two friends living in the other two bedrooms paying $500/month each. One friend moved out and I then started to rent the room out on Airbnb (which I started a little over 2 weeks ago now and loving it!).

    Now I have my dilemma. I am coming up on a year since the home purchase (will be a year on 8/8) and I believe I have the ability to get another FHA loan after living in this one as my homestead for a year. I would love to do another house hacking project that needs a little work this time instead of purchasing a brand new home like I did with this one. Is this something I can do? What would you do in my shoes?

    Would greatly appreciate any advice from anyone on here! Thanks for taking the time to read.

    • Chad Carson

      Hey Travis, thanks for reading. Could you rent your old home out to a long-term tenant and still make positive cash flow? That would be my concern moving out of the old home. I don’t know what your mortgage and other expenses are on the house, but if you could turn it into a good rental (run the numbers here with BP rental calculators), then maybe keep it. But if you can’t get positive cash flow, maybe you just stick where you are until you can sell or rent it in the future. As it is is you’re covering $1,000 of your house expenses, so that’s pretty good! You could also just buy another rental while you’re living in the house. If you have good job and credit, you could probably get a good loan on the new rental project too. Good luck!

  6. Andrew Deveau

    Chad

    Great Article, I’m currently in the scenario in which we are considering the Live in and then Rent option. I’m wondering our current house is livable and very comfortable, however, I know of a few big expenses that will be coming up soon 2-4 years (ie new chimney and a stone wall). I have thought if I wait to do this work after I’ve rented it out I could claim these expenses against the income of the rental. My thought is that if I do this work while living in it as a primary residence I could not claim these expenses.

    Would you know of any reason why this would not be a good strategy?

    Thanks in advance.

    • Chad Carson

      Hey Andrew, that’s a really good question. I’d have to defer to some of the smart BP CPAs like Brandon Hall and Amanda Han to make a more conclusive answer. But I’d be thinking the exact same way you are. You could post that question in the forums and tag their names so that they’ll see it. But I love the idea of the live-in-then rent. Hope it works out well for you!

  7. Megan Greathouse

    Love this article. At 30, I wish I’d taken some of these moves earlier in my career. But my husband and I did rent out our first home when we bought our second. It cash flows about $200 per month and, better yet, we have nearly $100,000 in equity! Currently looking to invest in more rentals in our hometown of St. Louis. And we now have a 1-year-old girl, so I’m already thinking about how to teach her early about how to turn her living situations into investments when she’s older! Thanks for the smart article!

    • Chad Carson

      That’s great, Megan. $100,000 of equity and $200 positive cash flow is a winner! My wife’s family is from St. Louis. It seems like a good overall rental market from what I’ve seen. And I love your idea of teaching kids about this stuff!

  8. Chad, completely agree with you on overspending on your primary residence and cars. I totally get the live in then rent and the house hacking strategy.

    Live in flips are extremely risky. It is pretty easy to LOSE a low to mid six figure amount with this strategy. You have to really, really, really understand the market where you are buying your house, really understand what buyers are going to want in 2 to 3 years time, really understand how to budget and manage multiple contractors, and really hope there is not a downturn or correction in the 2 to 3 years you own the house. And of course there are very large transactions costs on both ends. Live in flips are not quite gambling, but pretty darn close. I know people who have made a bundle tax DEFERRED with live in flips. I also know people that have lost close to a million dollars on live in flips. And just because something has favorable tax treatment does not make it a good idea.

    A far better idea is to buy some bread and butter rentals for both cash flow and equity. Tap a HELOC and buy investment property, etc. I like your other two strategies a lot. Please don’t encourage people to forgo 401Ks and invest in fix and flips.

    • I made a million dollars on my house. Just picked the best neighborhood I could afford and lived there while my kids grew up and went to school. This was the best thing for my family and for my finances. It didn’t hurt that it was in the Silicon Valley area which has some of the most expensive RE in the US. The better the area, the more money you are likely to make. Short changing yourself in an expensive area like that is financially dumb and is not good if you have a family. If I could have afforded an even better house I would have made a lot more, but I did fine. My biggest regret is I didn’t buy more houses. They ALL went up a million, not just mine.

      I don’t think all these flips and hacks are good for kids growing up. I don’t see anything wrong with finding ways of investing that don’t require you to move a lot though. And there are plenty of ways, which I have subsequently gotten into. But buying a “dream house” and living in it provided me a solid financial foundation.

      • Chad Carson

        Kurt, there are always more than one way to accomplish goals, right? Obviously you chose a path that worked for you. And that’s great.

        But for your housing strategy to make that much money, you likely had some INCREDIBLE appreciation. Can people buying dream houses everywhere else in the country count on that? That’s more speculative and less investing. Not to say you can’t make money speculating, but it’s less of a sure thing.

        And if a dream house only goes up like the average – let’s say 3% – it’s definitely not going to be an investment winner compared to these other strategies. Mortgage payments, maintenance, and other housing costs going out the door would eat up those tiny gains. And opportunity cost would eat up even more.

        But you brought up an interesting point about lifestyle. Are house hacks and live-in flips bad for kids and families? I think that’s debatable. What if it leads to financial independence faster so parents can be at home with their kids more? What if it teaches them entrepreneurship and hard work? What if they learn to be content with a smaller space?

        Everyone has to make their own choice. And there’s no right answer. But the choices I’ve laid out are certainly viable for a large number of people.

        • Hi Chad,

          Those are all good points you have made. I guess I just found it irritating when you implied that people buying the best house they can for their family to live in are suckers getting taken to the cleaners.

          I bought the best house I could and I made a million over the next 20 years. A couple of towns over in Palo Alto they bought pricier homes in a better area and made 2 or 3 million. Sure their investment was more, they paid $2-300K more. I am sure not many of them regret that.

    • Chad Carson

      Hey Gary, I don’t disagree that people can lose money. But you could also theoretically call renting super risky because it’s possible people could buy with negative cash flow, forget to budget for $20,000 in capex expenses, etc. A strategy isn’t good or bad based upon the worst applications of it. It’s good or bad based upon it’s potential when applied correctly.

      Risk can me mitigated with smart buying and planning. With a live-in flip the numbers should be evaluated just like a regular flip – which means buy LOW, not at retail prices. And if you buy with affordable mortgage payments, you could afford to sit on it for 4-5 years if the 2-year flip doesn’t work. You might even be able to turn it into a live-in-then-rent.

      It sounds like people you knew who lost money were buying big, luxury houses to flip. That’s not my cup of tea. I think you can buy above median prices, but I wouldn’t go any higher than 20% above median – just like any other investment property I would buy. This prevents you from chasing big money but losing the meat of the market.

  9. Chad, are you on the SC’s upstateCREIA group? Your name seems familiar. I think I may have talked to you a few years ago. I get the posts but don’t live in the Carolinas anymore.

    i was interested in your comment that you plan to live in Equador for 2017. I have had that same thought at some point. I suppose you have you researched real estate there? Can Americans get mortgages? What cash flow opportunities, leverage can you expect, etc?

    • Chad Carson

      Hey David, yes I’ve been a member of Upstate CREIA in Greenville for a long time. I’m sure we bumped into each other there.

      Yes, we’re down in Ecuador for all of 2017. We’re just renters here. I have no plans to buy. From my conversations here, mortgages are possible for locals but expensive. Good rates could be 13-14%, down payments are higher, and amortizations are shorter (like 10 years). Most Americans I’ve seen have paid cash or refinanced assets back in the US to raise funds. And the rent to price ratios, at least here in Cuenca where I am, are not that good at retail prices. Perhaps they are better in other locations.

  10. Jon Tudor

    Good article and advice. Had a very applicable conversation to this Friday. A friend of mine was asking me about buying his first home. He was looking at condos in the one of the trendiest areas of the city where the condos cost as much as 4,000 sq. ft. houses in top school districts in other parts of the city. The area is where everyone wants to be right now though so he wanted to be there too.

    We talked and he lowered his price point but based on the conversation I believe he is still very focused on getting one of these condos because of the experience of living in that location. I respect his decision but I all I felt during that conversation was the gravity of the decision. My wife and I bought our first home far below our means when we were 24 in a great school district right next to an area that the city planned to develop into the largest park/mixed-use community in the area because we wanted to secure a future rental property that would also appreciate and cost us less than our rent. In the 2.5 years since it has increased in value by 18% and it can act as a great rental property. In those same 2.5 years we wife and I built two disparate early retirement plans, one that retires in 10 years with real estate, the other in 15 years with traditional retirement investments. We also bought our first rental property which we ironically had our first tenant sign their lease for on the same night my friend asked me that question.

    The debt associated with our two properties is half as much as the debt my friend will have if/when he buys this condo and we have one current and one future rental property because of it. We plan to buy four more rental properties and our dream home, a unique transitional or contemporary fixer-upper that we can fix and install what we want in during the next three years. We are 27 and my friend is 30. I think we can retire sometime between 37 and 42, he will likely retire at 67 or later as my age group is estimated to do. In my mind, acting with an investment mindset with not only real estate but my resources in general is worth 20-25 years of freedom in my life. I think that conversation will stick with me as I get older.

    • Chad Carson

      Wow. What a great story. Thank you for sharing. I think the example of your friend compared to your path shows the enormous difference in an investment approach to housing and life in general. It’s 20-25 years of freedom! That’s the main point!

  11. tim boehm

    Chad
    You hit a home run! and your advice is almost word for word what we did and now live comfortably with our 6 rentals. Had just finished up the last 4 and a guy offered me over 200k over what I had in them, glad I didn’t sell as interest rates went on the skids. Good going and like you said start young with a plan!

  12. Mark Hentemann on

    Hey Chad, great, very thorough article on the strategies and options available! You asked for stories, here’s mine: unlike you, who clearly started down your home-buying path with a clear plan and a goal in mind. Mine was more haphazard. But I did know that putting money toward a house had to first and foremost be a good investment.

    I was looking to move out of my apartment because the landlord raised my rent. I had about $60,000 saved up, and a local Los Angeles broker suggested I put that money toward buying a house instead of wasting it on rent (of course she said that, she wanted the commission, right?). I was nervous about the inconsistency of my work income, so I told the broker that if I was going to buy a house, she had to find me the best investment in the area.

    To the broker’s credit (only in retrospect– at the time, I thought I was being taken for a ride) she came back and said, “I’ve found you your investment. But it’s a duplex, and you have to become a landlord.” I shrugged and agreed, appreciating that she took my mandate seriously.

    I then had to outbid eleven other buyers and go $36,000 over asking price to purchase a $435,000 duplex in an up-and-coming neighborhood. The market had been hot for 4 straight years and the fact that there were eleven buyers vying for this property convinced me I had bought at the peak, and there was nowhere to go but down.

    But my monthly mortgage payment was roughly comparable to what I would have been paying in rent, so I figured I’d ride through the inevitable downturn. I put in about $60,000 in renovations, and waited for the neighborhood improve. And it did.

    I put it on the market after five years, and through the marvel of extended market growth cycles, hot neighborhoods, and leverage, I sold the duplex for $1,270,000. My $43,500 down payment had turned into $835,000.

    Because we had put the $60,000 of renovations into our side of the duplex, my accountant attributed $500,000 of gain to our side (which, per homeowner credit, was all tax-free), which we used to buy our next house. The accountant attributed the remaining $335,000 of gain to the rental side, which, as a rental, I 1031exchanged, tax free, into a 14-unit building, which a few years later I 1031 exchanged into a 20 unit bldg.

    I attribute this mostly to dumb luck (I’ve gotten way more savvy over the years, as I’ve continued buying investment real estate, but I believe that this first purchase, my jump from renting to owning, is still my best return on investment). But one thing I did do right back then, amidst my naivety– the central theme of your insightful post– is look at real estate, first and foremost, as an INVESTMENT. There’s simply too much money involved to let it be an emotional or impulse buy.

    Thanks again!
    Mark

    • That’s a great story. The problem I am having with taking it to the next level here in LA is a) financing and b) property taxes.

      It seems like once you make that jump to 5 or more units, you are forced to get commercial loans which have higher interest rates and tend to be fixed for only an initial period, plus they are a shorter overall term. It all combines to make the cost much higher.

      The other problem, as I mentioned, is property taxes. It seems like prop 13 tends to lock you in once you have owned for a while. It’s rent control for landlords.

      But anyway, I am glad you have made it.

    • Chad Carson

      Wow, what a story. Yes – you might not have known that you were doing house hacking when you got in. But you obviously had good intuition about investing to make that choice. And you bought in a neighborhood that had growth potential. And the mix of the live-in flip + 1031 exchange series was excellent! You’ve combined about 10-15 investment concepts into one simple story and it seems like you’ve done very well for yourself. Inspiring! Thank you for sharing!

  13. Justin Park

    Great article! My first house I owned was a house hack as a young single guy, and now I’m living in a house my sig. other and I intend to rent after we’ve lived in it a few years and slowly picked off some important upgrades. Sounds like your live-in then rent was a little different with owner financing, but for someone like me who has a plain-old FHA loan on their house, any tips on the financing? We’re planning to rent the current place when we see a great deal on another house in the area that we can live in, then rent as well. But I realized I haven’t thought through how to finance. I suppose we’ll just need to find a lender willing to take into account the estimated rents on our current house? Any more creative ideas than that are appreciated and thanks again for the article!

    • Chad Carson

      Justin, sounds like you’re making good progress and have a good plan. With the financing, a mortgage lender who does investment loans will be able to tell you better than I can on qualifications. But it seems like your options are:
      1) Get qualified for the new loan using your income and the expenses from both houses (current and the new one) because lenders will need to see seasoning of renters.
      2) Do a BRRRR strategy on the new house by using a private or local-bank short-term loan until you get your old residence rented for long enough to get credit for the rent. Then you can refinance the new house with a better mortgage.

      If you’re not on the loan for your sig. other’s current house, you may also be able to qualify for the new one buy yourself. Just ask your mortgage lender what’s the best route.

  14. Maurice Lyle

    This article was right on time! I’m currently looking to house hack and the back up plan is a live in flip, but I’m keeping my finger crossed on a nice multi family to hack. The financial feeedom hacking allows is definitley something to look forward to. Great read!

  15. Bryan Drury

    Chad, Great strategies for anyone wanting to build wealth thru something that everyone needs which is housing. And as you pointed out it is very expensive and can limit your options if not done correctly. All young people need to consider these strategies just to have more options in their future. We have practiced all 3 strategies over the years and done well. Lowered our housing expense,built equity, saved on taxes, and reinvested into more property. Great idea to start a movement.

    • Ironically, what your wife wants to do may end up putting you in a better financial situation in 10 or 20 years, than flipping and hacking. Depending on the location, buying a house and living in it long term can be an absolute windfall. It’s very hard to beat the compounding appreciation of a well located house in one of the “chosen” markets. For younger people, the idea of beating the system sounds appealing, but I don’t think when all the dust settles you will have made yourself better off. What I really don’t get about the article is he says you will get so much freedom from flipping and hacking, whereas what he describes sounds like headache after headache.

      I realize many of the zealots here don’t agree with me, but I would just ask you to look at what price houses were in your area 20 years ago and what are they now. In my area they have increased by a million dollars or more. If your numbers look good, then you are probably in one of those markets where buy and hold is the way to go. I would buy the best house possible, and use the equity to finance your real estate investments.

      • Chad Carson

        Kurt,
        I’d be curious on the actual math and return on investment of your house that made a million dollars.
        – How much did you buy the house for?
        – How much did you invest in it while you lived there?
        – How much did you pay in interest while living there?
        – How long exactly did it take to appreciate by $1 million?
        – Have you leveraged that windfall to buy other investments? Or is it sitting there idle?

        Appreciation windfalls are great. But how repeatable are they? That’s what we’re talking about here. Repeatable investments that yes, require work and occassional headaches. For people who want passive investing – it’s fine to go buy index funds or do something else.

        • Hi Chad,

          I’m glad you are interested in my story. The truth is it is pretty common in California and many owners have made a great deal more.

          Actually the mortgage payment and costs were never that onerous. I paid about $250K for the house in 1995 and my PITI was around $2000/mo initially and $1500 after refinancing to lower rates. I refinanced a few times as interest rates dropped, but even from the very start, rents went up so fast in the late 90s that apartments were renting for more than my house payment within a few years of the purchase. While it was a bit of a stretch initially it was well worth it.

          You asked about upgrades and I did a few: a new roof, new windows, new copper pipes, new floors a new shed. I probably spent about $40K on all of this, and the house admittedly did come with a lot of built-in work to do. So in that sense I agree with you about the “dream house” being a mistake, if the dream house is not in the best location you can afford. You should choose the house in a better location over a bigger house in better condition in my opinion.

          I sold it after 19 years for $1.25M. A couple of years before selling I did a cash out refinance and bought a house in Southern California. And shortly after selling I bought a Multi-Unit income property with 50% down using most of my profit. Both properties cash flow and combined they have increased about $800K since I purchased them as the Southern California economy has picked up.

          My main point is that stretching to buy in the best location possible during a time when the economy was still a bit shaky, was the best financial decision I ever made. I can’t guarantee it will work out that well for everyone but if you know the cycles and pay attention and you are in a market like that where there is limited supply and high demand, it is the surest bet I know of. And once you have the “tiger by the tail”, why let go? Why even think about flipping when the house can go up $2-300K in a good year? You are playing with fire by selling a house like that trying to go find another bargain. Just hold onto it, and if possible buy another one!

        • Chad Carson

          Thanks for sharing, Kurt. Very interesting how you parlayed the proceeds into more good investments. Well done. I can see why you say it’s the best decision you ever made.

          I think there is always more than one way to accomplish goals. I’m glad you had this discussion to illustrate that. The world’s too complex for all or nothing solutions.

          But I think it’s also important for people to know what they’re up against to replicate your success. If I did my math right, $250,000 going up to $1,250,000 in 19 years is about 8.85% appreciation on average. That’s incredible.

          I had to make assumptions, but I assume your total cost over time was $250,000 + $40,000 + $200,000 in interest = $490,000. Put $490,000 in and get $1,250,000 out in 19 years – sounds good.

          But if the house had appreciated at a very respectable 5% per year, the final value would have only been $632,000. $490,000 in to get $632,000 out in 19 years is not so hot. My internal rate of return says it’s about 2%.

          That’s still living positive for 20 years, and if that makes your family happy AND you can achieve financial independence otherwise, then great. But it wouldn’t beat the returns of some of the investment scenarios I presented in the article. So, people in other parts of the country where well-located houses ONLY appreciate at less than 5% should consider their odds.

          So, again – this is a good discussion. Thank you Kurt. Hopefully everyone will look at all the points and make an educated decision for themselves.

  16. Cassie Roberts

    I especially love this article because I’m 30 years old and a handful of my friends who live in the Minneapolis/St. Paul area are currently buying their “Dream Home.” Don’t get me wrong they are friends of mine so I’m happy for them if that is what really is going to make them happy, but I would be lying if I said I don’t sit back and question how at age 30 they are buying half a million dollar homes on the salaries they make. More importantly I question, why? Why do you need a 4,000+ square foot home with 5 bedrooms? What seems odd to me is that is not how we were raised…our parents didn’t even have homes like that and certainly not at the age of 30. My husband and I both work and make above average salaries for our location we live and age, we have chosen to live in a more modest home with a mortgage payment that allows us to purchase rental income properties. We just closed on our third SFH in the last year. Our plans have changed quite a bit after reading articles on BP and not that I think my friends need to be doing what we are doing. At the end of the day I just want the best for all of them and if buying that dream house is what’s going to make them the happiest then great, but I really enjoyed this article as a reminder as to why we have chosen the life we have.

    • Chad Carson

      Yeah, I could be happy for my friends IF they knew the true consequences of their decision. That’s really why I wrote this article and want as many people to share it as possible.

      If someone wants to buy their dream home and they understand the financial opportunities they are giving up, no problem. But I think most people don’t really do the math. Or they don’t see these other options as possible for their life.

      I guess we can’t change everyone, right? At least you’ve got it figured out! Congrats!

  17. Connie Keslar

    Thanks for all of the great examples you have shared here !!! I think you are right on point with article!!! No risk no reward and yes anything can go wrong but you must account for that on the way into the buy and looks like you gave yourself plenty of room !! Good stuff. I am going to put my scenario out there and maybe you can help.
    I recently purchased my first rental property in C neighborhood and we are currently finishing the rehab on it. All in I may be looking at 35K. The ARV is tricky because it is a row house and there are very few like it in the area. Hoping to get it valued at 45K so that I can pull all of my money back out of it once it’s rented. It will rent for $800 per month.
    I live in an A+ neighborhood and my mortgage with taxes and insurance is 1150 per month. When I bought my house 7 years ago I put 55K down on it. (Not knowing what I know now grrr ugh )
    I borrowed against my homes equity to purchase our first investment property. I am now contemplating what my next move should be. A few months back I put an offer of 23K on a SFH in an up and coming neighborhood. They are currently building a major outdoor shopping mall with walk ability from this property. This will def increase the value of the homes in that area. The house is currently one street outside of a B neighborhood….I recently received notice that the bank countered at 25K …..the house needs a LOT of work. It has a funky layout. Many add ons. They built a new 2 car garage and converted the old one into a living space. It has 5 bedrooms and 3 bathrooms. Reno will be upwards of 40K. ARV should be around 85K …..being very conservative. This house would be a great section 8 rental ! The current rents in the area support getting around 13-1400 for this property per month.
    I am working part time and I am in the red every month by about 400 bucks.
    So we recently were talking about renting my house and moving either into a house hack situation or a fix and flip situation.
    My house would rent for about 1800 per month …..before I rent it I would have to finish my main bath Reno which would take about another 5K …
    Moving out of my current residence would relieve the current bleeding I am doing every month. I made the decision to quit my full time job to go to school and work on real estate so I consider the loss per month my college tuition. I am just trying to find the best path forward ….I love the area I live in and I don’t have to make that move but we are both in our early fifties and time is of the essence here.
    My main goal is to be able to travel and enjoy life sooner rather than later!! So do we invest in another SFH or do we look to move into a fix and flip or do we hang tight and look for a multi-family rental property that will cash flow better. Just not sure what the best move is at this point.
    Suggestions or comments would be welcomed:)

    • Chad Carson

      Connie,
      Thanks for reading and for sharing your story. There are a lot of details and specifics with your situation that would be difficult for me (or anyone) to say with limited info what you should do exactly

      But in general when I’m in a growth mode (which it sounds like you are), cutting your housing expense and optimizing your housing are a smart move. I like the idea of renting your A+ house because it removes your big mortgage payment and it leaves the opportunity for you to move back in later. So, you could go do live-in flips for 4-5 years or just live cheaper somewhere. Hopefully you could make some extra tax-free cash while living cheap (I assume you’d move to a lower-price neighborhood to do the flips?), and then move back to your current home once cash flow and job income have stabilized.

      So, I guess my point is what it sounds like you’re considering (renting your house) doesn’t sound crazy. Just do a lot of planning and get help from local pros on the ground if needed (contractors, property managers, etC).

      Best of luck!

  18. Connie Keslar

    Thanks for all of the great extamples you have shared here !!! I think you are right on point with article!!! No risk no reward and yes anything can go wrong but you must account for that on the way into the buy and looks like you gave yourself plenty of room !! Good stuff. I am going jto put my scenario out there and maybe you can help.
    I recently purchased my first rental property in C neighborhood and we are currently finishing the rehab on it. All in I may be looking at 35K. The ARV is tricky because it is a row house and there are very few like it in the area. Hoping to get it valued at 45K so that I can pull all of my money back out of it once it’s rented. It will rent for $800 per month.
    I live in an A+ neighborhood and my mortgage with taxes and insurance is 1150 per month. When I bought my house 7 years ago I put 55K down on it. (Not knowing what I know now grrr ugh )
    I borrowed against my homes equity to purchase our first investment property. I am now contemplating what my next move should be. A few months back I put an offer of 23K on a SFH in an up and coming neighborhood. They are currently building a major outdoor shopping mall with walk ability from this property. This will def increase the value of the homes in that area. The house is currently one street outside of a B neighborhood….I recently received notice that the bank countered at 25K …..the house needs a LOT of work. It has a funky layout. Many add ons. They built a new 2 car garage and converted the old one into a living space. It has 5 bedrooms and 3 bathrooms. Reno will be upwards of 40K. ARV should be around 85K …..being very conservative. This house would be a great section 8 rental ! The current rents in the area support getting around 13-1400 for this property per month.
    I am working part time and I am in the red every month by about 400 bucks.
    So we recently were talking about renting my house and moving either into a house hack situation or a fix and flip situation.
    My house would rent for about 1800 per month …..before I rent it I would have to finish my main bath Reno which would take about another 5K …
    Moving out of my current residence would relieve the current bleeding I am doing every month. I made the decision to quit my full time job to go to school and work on real estate so I consider the loss per month my college tuition. I am just trying to find the best path forward ….I love the area I live in and I don’t have to make that move but we are both in our early fifties and time is of the essence here.
    My main goal is to be able to travel and enjoy life sooner rather than later!! So do we invest in another SFH or do we look to move into a fix and flip or do we hang tight and look for a multi-family rental property that will cash flow better. Just not sure what the best move is at this point.
    Suggestions or comments would be welcomed:)

  19. Erin Margaret

    I am currently in a live in flip. I paid
    Contractors to get the big stuff up to code (plumbing, electric, and foundation) and now I’m doing the cosmetic work one room at a time as I can afford it while I work a ‘day job’ so far I have 32k in the purchase of the house and 14k in renovations in to it and my realtor said she could easily sell it for 70k as is even before I finish the rest of the rehab. I’m going to keep rehabbing for a few more months to avoid capital gains when I sell, but I’m very happy with the numbers so far.

    • Dan Frey

      Perfect Chad! My friends and I sat down on Friday evening and discussed this very thing, but on a community level. We are planning to incorporate, innovative, green and alternative construction and permaculture strategies into a new build community with the goal that the homes become live-in and cash-flow positive. We have a few ideas on how to make this work. If you would like to collaborate with us sometime, PM me.

  20. Dan Frey

    Perfect Chad! My friends and I sat down on Friday evening and discussed this very thing, but on a community level. We are planning to incorporate, innovative, green and alternative construction and permaculture strategies into a new build community with the goal that the homes become live-in and cash-flow positive. We have a few ideas on how to make this work. If you would like to collaborate with us sometime, PM me.

  21. anthony stephenson

    The starry eyed couple can always start flipping houses on the side to clean up the mess they have made for them selves. True this takes education, tenacity and a can do spirit to make happen but it is most definitely achievable. Ask me how I know:)!

  22. John Reynolds

    Good Article Chad , My wife and I are currently living in our first live in flip. It can be stressful especially if you don’t do all the repairs on the front end. We did many repairs up front but the small ones we are dealing with slowly as we have the cash. Reading this article reinforced why we got into this process in the first place and how you could do a few live in flips and be in a much more stable place financially. Thanks for posting this.

    • Chad Carson

      That’s great, John. Yeah – I think we all need reminders of the positive benefits of the tough paths we’re taking. It’s going to pay off in the end (and hopefully the end isn’t too far off!). Best of luck!

  23. Chad, I really enjoyed your article and compliment you on teaching others how to improve their financial situations. More people need to embrace getting our of the rat race sooner rather than later in life and to realize “they” are responsible for their financial well being. My husband and I have used all of these strategies except roommates and have turned a $25k net worth when we married 20 years ago into a $4M net worth today and positive cash flow that has replaced our day job incomes. We currently own 8 homes 2 free & clear, all of which we lived in at one time. We also own 1 apartment building, all properties are within a 1 mile radius. Key things we did, buy when the market was low, when other were fearful, did not panic when the market was down (we always knew we had a place to live) , keep our credit excellent, we always bought a property we could add value, we have kept our debt level low. We never had a problem with tenants, we treat them well and they have all reciprocated and we remove a problem tenant as soon as we realize it, we rarely have a tenant pay late. We watched our friends buy into the larger than life, lifestyle. We enjoyed working on our projects as a family, we always have “work” for a relative or friend in need, we rarely watch television. Mistakes we made, holding on to property with no appreciation or cash flow, we have learned to remove low performers from portfolio and spend time where it is needed. We are adding garage apartments to 2 of our houses, this helps to utilize larger pieces of property and to maximize cash flow. As we prepare to depart our day jobs we are adding a MIL unit on our property to move into so we can divide time between home base and the Desert. Everything we own will be paid for in the next 7 years, I feel very fortunate and blessed, but also realize we were not lucky, we worked hard and made a plan, something that most people fail to do.

  24. Eddie Lehwald

    Hi Chad, another great article! I love that your philosophy goes so much deeper than “how to make more more more forever and ever” and addresses the “why?” and “how much do you actually need to be happy?” parts of the equation. My girlfriend and I are currently house hacking a value-add duplex and I’m in the midst of selling a SF on which I’ve been fortunate enough to experience enormous appreciation (closing in two weeks!) and that money will buy several more MF properties to put us on track to travel more, work less, and spend time on family, friends and creative endeavors. You’re an inspiration and I hope you’re loving Ecuador, I spent some time there years ago and it’s an amazing country.

  25. Chad,

    Great article, (and great name by the way). We currently own a single family rental home. It was a home we lived in for 8 years and now have rented it for the past 10 years. That said, it is in a different state because we moved from WI to GA. My wife wants to sell it. I want to keep it for long term retirement. We have always managed it ourselves; however, can no longer do that and the 3 year tenants are moving out in July – hence the debate to sell. I am told by our accountant we will have to pay capital gains because it is a rental, pay back for the yeas of tax advantages (some years it was rolled forward because my income was to high to receive the tax advantages), etc. I am looking for advice as it has always been a dream of mine to own/collect properties for retirement (ok maybe also to live better now).

    1998 home purchase $140k
    2007 refinanced taking equity out to start a business $220 (new financed amount)
    2007 started renting with FMV at $176 at the time.
    2017 $1900 current rent
    2017 $1300 current mortgage
    2017 $500/mo current taxes
    2017 $60/mo current insurance

    2017 FMV listing price by agent I am told would be $289k less commission (actual sell price) closing costs, etc.

    Current Net – $40/mo with 8 years left on the mortgage.

    My wife want so to sell it, and use the money to purchase a property in FL we can visit AND rent out. I just am not sure.

    I would love to get your take.

    Sincerely,

    Chad….

    • Chad Carson

      Hey Chad,
      Your CPA is definitely the first one to talk to on this. You want to consider tax implications and understand exactly what your tax bill will be when this puppy sells.

      I also wasn’t clear what your net even before considering income taxes would be. What’s your current mortgage balance?

      That $40/month on the rental doesn’t include maintenance or long-term capital expenses. So, you’re actually negative if you included all expenses possible. That may weigh into your decision as well.

      There are a lot of factors, so it’s hard to say not understanding your whole picture. But I’d consider 1) Your tax implications 2) your ability to find another deal/investment 3) the upsides and downsides of this current property 4) how it all fits in to your bigger wealth building picture.

      Seems like a lot to consider, doesn’t it? It’s always a puzzle that’s connected to other puzzles:)

      Best of luck!

  26. Jeff Pitzer

    Great article Chad! I’ve done both of those things without knowing they had a name.. in Dallas Ft. Worth area I bought a foreclosure in ’08 after a horrible divorce. .did the live in flip thing while putting my life back together. . Met my current wife who is very Real Estate minded. . (My salvation)!.. to your point of being on the same page. She helped me finish it up.and put a $100k in my pocket 8 years later.. we became partners in a 116 unit apartment complex with half of that tax free profit. Then I bought a 3 bedroom home in a up and coming suburb with the intention of it being a rental when I’m done with it.. it cut my mortgage in half from the live in flip and shold cash flow $500 mo. Or better. .. the remaining money is invested in a flip house across the street from a house my wife is flipping. .with a hard money loan, the profit should 1-1/2 times my annual salary at my job… so I quit it to be a full time real estate investor! Very exciting! The money from my 1st flip is going to be used to build a new duplex on a lot my wife owns out of shipping containers… the duplex should bring in $2000 -$2400 mo. If I can find a lender to do a cash out mortgage on the container duplex I’ll do the same thing over and over…I’m kinda being a pioneer on this concept but if it works……the sky is the limit! Great article. .guess great minds think alike. .Lol!

  27. Daniel Somers

    Great article Chad! I love all these concepts. I have done the house hacking before and loved it. I just sent my fiancee the link to this article! We are looking to relocate soon and would love to use one of these strategies when we do! This is definitely one of those “eye opening” articles that people should listen to.

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