What would life be like with no rent? No mortgage payment?
Pretty good, as it turns out.
Nowadays, 11 million Americans spend half their income on rent, and that doesn’t include the millions of homeowners similarly overstretched.
But for anyone looking to find a different path, house hacking comes with plenty of perks. For this story, I tracked down a bona fide house hacker and pried until he agreed to spill the proverbial beans on exactly how he did it.
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Tim Puffer is a 27-year-old insurance underwriter who lives in East Lansing, Michigan. He woke up one day sick and tired of paying for housing.
So he did something about it.
Tim had no prior real estate investing experience—and no experience renovating homes, either. But the more he researched house hacking, the more confident he became that he could do it.
He started looking for small multi-unit properties in middle-class neighborhoods around town. Eventually, he settled on Forest View.
Forest View is a quiet neighborhood near Michigan State University. It’s a neighborhood of classic suburban cul-de-sacs, with minimal traffic. Kids play outside during the day.
The area consists of $90,000-150,000 single family homes, well-maintained condos, and a clean, middle-income apartment community with about 100 units.
Tim goes on to explain: “We are about a two-minute drive from the Michigan State University campus and the campus golf courses. We actually had a few MSU professors look at the unit to rent and MSU basketball’s new head trainer! They didn’t rent from us, but I knew I had a solid location because of that.”
Tim bought a bi-level duplex, with each unit boasting 3 bedrooms, 1.5 bathrooms, about 1,400 square feet of living space, and a one-car garage.
The lower level on both sides has a walkout to a small wooden patio, which overlooks about a half-acre total and is almost completely enclosed by trees from the neighbors.
So, how did Tim find this gem of a property?
For anyone who thinks direct mail is dead, hold your horses—Tim sent a good ol’ fashioned handwritten letter to the owner. Turns out the owner was ready to sell and called him back.
The Numbers: Acquisition & Updates
Tim bought his duplex for $119,500, financed through an FHA loan with their skinny 3.5% down payment.
The seller also contributed $4,500 towards closing costs, $1,000 towards a new hot water tank, plus money to cover an extra month’s rent for one of the tenants. (“The other unit’s tenant was rented to his ex-step son.”) Tim gave him notice to vacate, and he stayed the extra month prepaid by the seller.
One of the units needed some work. The prior tenants of six years had smoked and were “not clean people.”
Total cost of renovations: $17,000 for updated flooring, windows, deck, cabinets, paint, central air, hot water tank, countertops, and appliances.
If that sounds like a lot of work and not a lot money, well, Tim put in plenty of sweat equity himself. “Bear in mind that I completed most of the work myself, save the A/C, hot water, windows, and deck. I had not previously done any flooring, good painting, trim work in my life. I’m a d@*n good painter now!”
Oh, and the other cost in that $17,000? Tools. Tim didn’t have any since he’d never done this kind of work before.
How did Tim pay for all this?
“Repair costs were financed via cash, credit card, and re-financing vehicles to pull cash out. I have since gotten a HELOC on the building and paid off that vehicle and the credit cards. The building appraised for $162,500 after repairs.”
The Numbers: Monthly Cashflow
Tim’s mortgage payment (principal, interest, taxes and insurance) is $951. That includes an FHA mortgage insurance premium of $81/month (which, unfortunately for Tim, will never go away).
But his interest rate is a lean 3.75%; not too shabby!
And the rent? “The resident pays $1,140—pet rent is part of this. I provide lawn care and trash/recycling. They pay all their own utilities.”
That leaves Tim an extra $189/month to cover maintenance, repairs, and the odd vacancy, all before he ever has to pay a dime towards his own housing.
Has Anything Gone Wrong, or Is This a Fairy Tale?
“The cabinets and countertops didn’t go as planned. We purchased the countertops before the cabinets, and the cabinets ended up being slightly smaller. We had to purchase new countertop and eat the cost.”
Fair enough. After all, Tim is not a contractor and has almost no experience in home repair.
The story turns grimmer when it came to permits and inspectors. “I didn’t pull a permit for the deck when we built it. During my city rental inspection, they said I need to pull one. It’s taken me about a month to find a contractor willing to put the permit in his name, do the site plan drawings, and take on anything needed to appease the rental inspectors. I’m hoping to finally have this wrapped up in the next few weeks.”
City permit offices are a nightmare at the best of times. When you miss a step, and do work without a permit, prepare for the wrath of local bureaucracies to rain legal hassles, paperwork, fines, fire and brimstone down upon thee.
What about trouble with the renter?
Tim says he’s been lucky so far. “No major issues. Just small things—I like to play music when I get home from work while I’m doing things, and they have an 18-month old. I wait until they are up from their nap at around 5:15.
“I don’t play it ridiculously loud, but I pay attention to that for them.”
Sounds pretty hunky dory to me.
I asked Tim what advice he had for other people looking to model his success with house-hacking a duplex.
“Know your numbers! Even though I underwrote for $950 rent and am getting more than that, there are still costs that I didn’t factor in at that time (over a year ago) that I have had to do, such as gutters and insulation.
“Also don’t be afraid of living next door to your residents. It’s really not a big hassle at all. Ideally you should try to choose a resident with whom you can be friendly, because you will see them quite often and have quite a few conversations outside of landlord/business talk. You may even share a bonfire or two together!
“That being said, if you have to enforce your lease’s rules—do so! You are running a business!”
Related: A New Way to Look at the Concept of “House Hacking”
Is House Hacking for You?
Not having a mortgage payment sure is nice. You could put your entire housing payment towards your investments and creating passive income!
Still, it comes with its own price tags. Tim did much of the renovation work himself, learning as he went along. He spent his weekends working while his friends were out having fun.
And city permit offices and inspectors? Bureaucratic red tape and threats of fines over a small wooden patio? Pure misery and endless frustration.
There’s also the close proximity to your tenants. You have both a business relationship as landlord and tenant and a personal relationship as neighbors. It can work well, like in Tim’s case, but it means choosing renters with extra care.
I asked Tim: Any final words of advice?
“Don’t talk about it; be about it! You can only talk about investing in real estate for so long before you need to take action!”
Ever pursued house-hacking? Any experiences to share? Horror stories?
You know we love a good story around here…