We’ve got another episode of our House Hackerz show with BiggerPockets. Today, we’re walking a property owned by Jeff that has two investment strategies: Room by Room rentals and Section 8 tenants. These are two strategies many people are afraid to try, but this investor shows us why they’re worth exploring.
- Watch the YouTube video (at the bottom.)
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the video.
Jeff: The Ultimate House Hacker
Jeff is the man when it comes to Room by Room and Section 8 rental strategies. He no longer lives in this property, but it was his third house hack. Now, he has six properties in his house hack stack. He has a full-time W-2 job, but he’s been methodical about house hacking every year. This property alone got him 50% closer to his retirement goal.
The house has a great layout for house hacking. It’s 3000sq ft, with a top unit that has 4 bedrooms/2 bathrooms and a bottom unit with 3 bedrooms/1 bathroom.
In order to find a good property like this, make sure you’re connected with your local investing community—agents and lenders who know and understand house hacking. We helped Jeff buy this property off the MLS a number of years ago, and it’s located in a neighborhood where this is a common layout. Last year, we helped another client buy his own house hack here, too.
Taking a Closer Look at the House Hack
Over the years, Jeff has perfected his Room by Room rental strategy and learned a lot of great tricks to keep tenants happy and the property running smoothly.
His first tip starts at the front door: get a smart lock with a key code. Everyone loses keys at some point, so make it easy for tenants to get in and out of the house. For extra tenant security and privacy, install a smart lock on their bedroom doors, too.
When you look around the house’s common areas, you’ll notice that everything looks nice, but it’s not set up for tenants to hang out. Jeff calls this “uncomfortably awesome”. The house looks great in pictures, but the common areas aren’t designed for tenants to spend a lot of time in. This avoids wear and tear on the furniture so it’ll need to be replaced less often.
In the kitchen, it’s important to have clearly designated communal and individual spaces. Make it clear where the shared dishes and cookware are located, and set aside cabinet space for tenants’ personal use. Jeff learned the hard way to apply this rule to the fridge, too. Everyone gets their own shelf, and when someone moves out, you’ll know exactly what food was left behind and can be thrown out. This avoids unclaimed food from sitting in the fridge indefinitely.
How To Find the Right Tenants for Your House Hack
Jeff follows two main rules when it comes to finding the right tenants: short leases and renting to strangers.
With a room by room rental, there are multiple strangers all living together. Other than your standard background check, you don’t know on the front end what they’ll be like living together. Some people are cleaner, some have a lot of cars, and some personalities just don’t mesh. To avoid long-term conflicts, have your tenants start with a short, two to four month lease so you’ll know how everyone fits together. After you know how the personalities balance out, you can renew the leases for a year.
Even though we all learned about stranger danger growing up, Jeff says renting to strangers is the only way that he can successfully house hack. Strangers will make you rich; friends will not. When you live with friends, oftentimes you realize that your living styles are completely different. Alternatively, it’s harder to be an unbiased landlord when you know your tenants on a personal level.
While your comfort level may vary, remember: your house hack is a business, and to be successful, you need to treat it as one.
Should I Include Section 8 Tenants in my House Hack?
The lower unit of Jeff’s house hack is occupied by Section 8 tenants. Section 8 is a federal government program that covers rent for low and fixed income families. It’s a great program that helps a lot of people with housing costs, and because the government is paying all or some of the rent, it’s guaranteed income for the landlord.
Breaking Down the Numbers of Jeff’s House Hack
Two of the top floor units rent for $850 a month, while the other two go for $750 and $650. Altogether, that unit brings in $3200 a month. A typical Denver metro four bedroom/two bathroom house goes for $2000 a month. By implementing a Room by Room strategy, Jeff increased his rent by $1200 every month!
The bottom unit rents for $1941 a month. With just one property, Jeff is generating $5141 gross rent a month.
Jeff’s House Hacking Portfolio
Jeff’s portfolio as a whole is very impressive. He has close to $5MM in real estate, with $1MM in equity. Simply put, Jeff is a millionaire through house hacking. And remember: he bought these properties by putting down between 3% to 7%. Thanks to all the ways you make money in real estate, he has seven figures in equity.
A lot of investors want to focus on cash flow because that’s what will allow them to eventually leave their job and retire. Jeff’s cash flow is just under six figures—over $90K a year! Through six house hacks in the past five years, Jeff changed the trajectory of his life.
Figure Out Your House Hacking Strategy
I think of Jeff’s portfolio as the ultimate house hack stack. He’s aggressively patient and wants to set a house hacking record. Learn all of Jeff’s methods and strategies straight from him by enrolling in his course, How to Self-Manage Your Rental on Autopilot.
But that doesn’t mean that’s the right strategy for you. It all comes down to your goals and lifestyle. That’s why over the next eight episodes we’ll be taking you through six different properties and interviewing house hackers about why they settled on their strategy. Watch the episodes and figure out what’s the best move for you.
After you watch the videos, let us know what you think! Reach out to me on Instagram or LinkedIn with your thoughts and questions about the properties and strategies you see.
And if you need help figuring out the right strategy for you, reach out to me for a free investment consultation.
