Our guest today is Michael, an Envision Advisors client who recently bought his first house hack in Colorado Springs. He moved from San Francisco to the Springs specifically to invest in real estate as part of his long-term wealth building strategy.
He joined Chris, Ben, and me in the studio to discuss why he made this move, what his goals are, and how he uses his background in both software engineering and stocks and bonds to formulate his investing plans. Check out the podcast or YouTube video for the nuanced conversation.
- Listen to the podcast “#96: Relocating from California to Find a Profitable House Hack in Colorado” on the Colorado Springs Real Estate Investing Podcast
- 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 podcast or video.
Why Move from San Francisco to Colorado Springs to Invest in Real Estate?
Michael was born and raised in San Francisco but found that investing in real estate there is tricky because of the amount of capital needed. He looked at other places in California, but found that the level of taxation made it unfeasible for him to invest.
Instead, he looked at Arizona, where he has family. While cash flow is higher in Arizona, he wanted to focus on appreciation. He did some research on BiggerPockets and learned that Colorado appreciates more than Arizona.
While looking into Colorado markets, he decided against investing in Denver. He sees Denver as the major market, and he’s looking for the next big market. He also wants more leverage for his dollars, so he settled on Colorado Springs.
Why Invest in a House Hack?
In San Francisco, many people live with roommates because of the high cost of living there. Continuing to live with roommates in the Springs felt familiar.
Plus, Michael’s background is in software engineering, so he values efficiency and the ratio of time and money. To him, it makes sense to live on a property and rent out the other bedrooms. He’s a minimalist who doesn’t like empty space and is always trying to downsize his belongings.
House hacking in the Springs is a natural extension of his experiences and personal outlook.
What Type of House Hack Works Best in the Springs?
Originally, he wanted a duplex that would come with two separate entrances. The duplex market in the Springs is very competitive, and he got outbid by other eager investors who wanted to set up Airbnb’s.
Instead, he ended up with a two-story single family home that also has a private basement suite. There are three bedrooms on the upper level, one bedroom in the basement, and four bathrooms (two upstairs, one in the basement, and a half bath on the main floor).
The house was originally listed at $450K, and he offered $460K to ensure he could close on the property. It was on the market for a week, which was quite a while at the time he was looking.
He put 5% down and has a 3.25% interest rate on a fixed 30-year term. He budgets 5% maintenance since the house was built in 2000, and pays $774 in taxes and $1711 in insurance yearly.
His utilities run:
- $75 monthly for water and sewer
- $80 monthly for electricity
- $60 monthly for gas
- $40 monthly for internet
- $99 quarterly for trash and recycling
He collects $2100 a month in gross rent and pays between $500-600 a month to live there, depending on utilities.
Why This Setup Is Great for House Hacking
At first, Michael expected to share the living space with the tenants, but his basement suite affords him an attractive amount of privacy.
Along with a bedroom and bathroom, he has a living area with space for an office. He bought a decently sized minifridge and double burner hot place in order to make meals in his space, and since the bathroom has a double vanity, he uses one for kitchen things and one for the bathroom.
Essentially, he has his own bachelor pad within the house.
He rents out two of the bedrooms for $650 a month and the primary bedroom for $800. If he were to move out of his basement suite, he would rent it out for $1200 a month.
Navigating the Inefficiencies of Lending
Coming from a background where everything is efficient and organized, Michael had to learn how to navigate the art of building relationships with lenders. He expected to find terms listed on websites and to pick the best one. Instead, he had to call lenders to find out their terms.
He’s learning that good relationships with lenders are key to his real estate investing journey. That’s where he’ll find good deals and creative financing strategies that will allow him to build his portfolio. The key to success building relationships and finding microtrends.
Michael’s Unique Investing Strategy
Usually, real estate investors grow their wealth by trading up into bigger properties. They go from a single family home to a multifamily property, like a fourplex. Michael intends to do the opposite.
He’s starting out with a bigger asset—a fourplex that he purchased in cash. His plan is to follow a waterfall investing strategy in which he pulls cash out of the property and redeploys it into smaller assets like duplexes.
Paying for real estate in cash isn’t a good use of equity, and utilizing leverage brings better returns.
Michael’s Tips for Investors Who Want to Relocate
Michael says the specific strategy will depend on the individual’s personality and values. Personally, Michael is a grinder, and he moved out to Colorado Springs specifically to start investing in real estate. He wasn’t looking for nightlife or city living, just a change of pace that was a good fit for his needs.
He encourages other investors to look at the long-term and anticipate how various markets will change. Where is the best place to put your money? Currently, he doesn’t feel great about the stock market. Real estate is one of the few major moves that most people can make. That’s why he bought this house hack and recently closed on a fourplex.
Connect with Michael
We’re excited to see how Michael’s investing strategy plays out and progresses as the market shifts. If you want to learn more about his strategy or the new platform he’s building to automate investing, email him at email@example.com or find him on LinkedIn.
To find your own house hack, reach out to us for a free investment consultation.