From Army Infantry to Using the House Hacking Leapfrog Strategy
Johnny McKeon shares how he uses the house hacking leap from strategy, to house hack three fourplexes in four years. Jonny went from living in the barracks to working as a prison guard to house hacking his way to creating a real estate empire. He also has a special guest join the show for the first few minutes.
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“I had points where honestly, I wanted to quit and like, give up.”
From Army Infantry to Using the House Hacking Leapfrog Strategy
The Famous Six
What is your favorite personal finance resource?
Mr Money Mustache and Dave Ramsey
What is your favorite real estate resource?
House Hacking Podcast and Bigger Pockets
What has been your favorite travel destination so far?
He hasn't traveled much
What is the biggest bucket list item you haven’t accomplished yet?
He wants to skydive.
What is next on your travel list?
Cabo San Lucas or Italy
What is your favorite life hack?
Discussed In This Episode
- Borrowing From a Hard Money Lender
- VA Cash Out Refinance
- Getting a Second VA Loan
- Charge Back Utilities
Johnny started house hacking while in the military. Saved almost his entire paycheck, $1,500 a month, and learned about house hacking when he left the military. Johnny read Rich Dad, Poor Dad from the library and came across other websites.
He was in the Army, 11th Bravo infantry from 2013 to 2016 in Fort Lewis, Washington. During high school, he found Dave Ramsey and Mr. Money Mustache and learned how to live frugally.
Johnny graduated high school in 2010 without much direction and took a few community college classes while taking ROTC. So Johnny enlisted in 2013 to give him purpose.
Because he didn’t spend much while in the military, he had $50,000 to $60,000 saved. Johnny stumbled upon house hacking and realized he could get a VA loan, 0% down, 100% financing.
Johnny realized he could buy a single-family home, duplex, or fourplex and rent out rooms or units for very little money down.
Johnny’s First House Hack
Johnny’s first house hack was in September 2017, a year after he left the military. He worked at a prison, lived with his dad for free and saved most of his paycheck.
Because he bought a distressed single story fourplex in Apache Junction, Arizona that was in foreclosure and not eligible for a VA loan for $211,331, borrowing from a hard money lender.
Built in 1984, each unit in the fourplex was 708 square feet, 2 bedrooms, 1 bath, had their own electric and water meters, a fenced yard, and was on sewer.
There were two existing tenants paying $550 to $600 a month. One of the units was infested with bedbugs and the other was infested with cockroaches and had major damage from cigarette smoke.
Johnny had planned to keep both tenants but increase their rents to $700 to $800 a month. But the tenants didn’t want to pay more which worked out to his benefit as he was able to rehab all four units.
Borrowing From a Hard Money Lender
With the hard money lender, you pay a higher interest rate. Johnny’s rate was 12% interest only for one year. But the advantage was this lender could come up with the money quick. Because Johnny was buying a foreclosure at auction he needed the money the next day. He got a 75% loan to value meaning Johnny had to come up with the other 25%. His down payment was $52,000.
Johnny’s bore the cost of his own renovations. He learned later that his hard money lender has programs where you could fund loan to cost to add in your rehab costs.
The mortgage on the hard money loan was $1,584 a month. Because the building was vacant and he had no money coming in, he was thankful he was living for free with his dad. “There’s a lot of money coming out but nothing coming in.”
Renovations took 6 to 7 months to complete and cost between $45,000 to $50,000. Johnny added new flooring, baseboards, cabinets, and new lighting. He sourced a lot of his finds from the Goodwill Reuse store and did a lot of the work himself to keep costs low.
After renovation, Johnny moved into one of the units, renovated the fourplex and rented each of the other three units for $800 a month. He did a VA cash out refinance in April 2018 for $245,165 at 3.75%, cashing out $79,000. Giving him a new mortgage of $1,365 including taxes.
At that time, the rules only stipulated a 6 month seasoning and a similar comp appraised for higher and his fourplex appraised for $245,000. He lived there for a little over a year, moving out in May 2019
On residential properties with one to four units, even though you can put new stuff in it, it doesn’t matter. It only matters what other units sell for and the comps.
Forced appreciation works for commercial properties of 5 units and up.
Johnny’s Second House Hack
Johnny used the Property Radar app, similar to List Source, to find his second fourplex. The app lets you search for foreclosures and when they are going to happen. You can search for specific property types.
He bought a second foreclosure fourplex in September 2018 for $261,100 using the same hard money lender 75% loan to value at 10% or 11% interest only for one year. Johnny’s rate was lower possibly because he had used the hard money lender before and had a good track record. He paid more than he intended because he got into a bidding war with an older couple looking for extra income.
The second fourplex, built in 2001, was a two story with two units on the bottom and two on top. Each unit is 810 square feet with 2 bedroom, 1 bath. There was no backyard and the complex was on septic.
Johnny’s second fourplex needed exterior paint, replacement of roof shingles, landscaping, the tenants were only paying $550 to $600 a month and one of the units was vacant. He fixed up the vacant unit first and rented it out for $800 a month.
Over time as leases came due he gave nonrenewals, improved those units, and increased the rents. Johnny lived in the unrenovated units and finished those renovations in March 2020. Because this fourplex didn’t need as much work, he only spent $45,000 on renovations. The property appraised for $310,000 and Johnny did a VA cash out refinance and got $100,000.
Now rents in both of his fourplexes are a little over $1,100 a month for each unit.
Getting a Second VA Loan
Home prices were more affordable so Johnny was able to get a second VA loan. He was eligible for a second VA loan because of entitlement. You have a certain number of entitlement and the purchase price of his fourplex was just a portion of that entitlement.
After the purchase of his first fourplex, he had enough remaining entitlement to get another VA loan. But now, with higher home prices, one fourplex can use up the entire entitlement.
Johnny’s Third House Hack
Johnny is in a third fourplex house hack but this time under a FHA loan. He is no longer working at the prison.
He bought the third property in December 2020 for $550,000 while he was still living in the second fourplex. It wasn’t a foreclosure. Johnny found it on the MLS. His mortgage is $2,624 a month including PMI.
For his justification on his move, he reasoning was a better area, townhome style fourplex, 940 square feet with private backyards.
Johnny is currently renovating the units in the new fourplex. He finished one until that was renting for $1,000 a month but he increased the rent to $1,325 not including pet rent, water, sewer, trash, and recycling. Johnny lives in one of the units and rents the other three, grossing $3,860 a month.
He chose to charge back utilities because they aren’t individually metered. All the utilities on his second and third fourplex are in his name and he divides the utilities by four. Johnny writes it into the lease as “tenant is responsible for ¼ of the utilities.”
Johnny self manages all his properties to save money so he can buy more properties, using Cozy.co property management software. He is considering outsourcing.
Johnny’s Next Move
Johnny recently got his real estate license and is looking into purchasing a triplex, each unit is 3 bedroom, 2 bath, 1,100 square feet with a private backyard. He plans to use his VA loan for this purchase and refinance out of the first and second fourplexes.
RO TIP: Have a Valid Justification For Refinancing
If trying to go from one house hack to the next, in the same city, you need a valid justification for the move to the underwriter. The underwriter wants to make sure you are not gaming the system, and trying to buy a property with an owner occupied loan.
In Johnny's explanation letter, the reason for why he’s moving after one year with his VA refinance was his first fourplex “is an older building whereas the new one is a newer building with larger square footage and it’s a little closer to where he works.”
This letter, provided the underwriter with justification. To them, it makes sense to want to live closer to work, and have a property to live in with more space.
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