As I have mentioned before, I believe house hacking is one of the easiest ways to get started investing in real estate. It also can help you reduce your living expenses and build investment capital. If you’re unfamiliar with the basics of house hacking, check out this fun post on the basics of house hacking. You can also read about my first house hack here.

Back in 2011, I had been working with a disaster response nonprofit for several years. My job schedule was quite erratic, and I had long bouts of travel both in the US and around the world. My travel schedule didn’t resemble the typical road warrior’s, leaving on Monday and coming back on Friday. I left on a random Tuesday and came back a month or two later. Over the first few years of this job I lived with family, friends and even rented my own place now and again. But once I signed a lease, I quickly realized that I would never spend time there and that I was essentially throwing away money. This made me think back to my first foray into real estate when I had a roommate that paid more than half of my housing costs. It got me thinking: could I do that again, but this time step it up even more? Could I possibly live for free?

This reminded me of a place my friend lived in by a local college. He lived in a condo that was a four-bedroom and four-bathroom place. Each room had its own private bathroom with a bedroom door that locked. The roommates just shared the common area. They were each paying the landlord $400/month which also covered their utilities. That got the wheels turning in my head: this landlord was bringing in $1,600/month, and these places were almost always full of college students. This could be the makings of a great deal for me. Since this was in 2011, it was also a great time to buy.

So I went and got approved for a loan, specifically a Federal Housing Administration (FHA) loan. This meant I only needed 3.5% of the purchase price for a down payment. This was one of the cheapest ways to get into a home. Then I found a local realtor and had her set up alerts for similar 4 bedrooms and 4 bathrooms condos near the university. That’s how I found a 4 Bed, 4 Bath Condo, for sale at $92,000 and it just needed a little TLC.

As I was going to live in the property, I only needed 3.5% down plus closing costs. But, to eliminate my cash to close even further, I negotiated with the seller to pay my closing costs. With the transfer of prorated rents, and the seller paid closing costs, I barely needed any cash to close. And it ended up being less than the 3.5%. Then after closing, I put in roughly another $2,000 to touch up the property: things like paint, some new carpet in a bedroom, and a new washer & dryer. I then moved into one room and had existing tenants in the three other room. My mortgage payment with taxes and insurance was under $700/month.

Here is what the cash flow looked like:

Gross Rental Income: $1,200/month (three rooms at $400/month, one room that I lived in at zero)

Home Owners Association: $175

Electric: $100

Internet: $80

Mortgage: Roughly $700/month (including taxes & insurance)

Net Monthly Cashflow: $145

That’s right: I was not only living free, but I was also making $145/month. I was ecstatic! Keep in mind, I didn’t calculate in vacancy loss, CAPEX, or maintenance—though I was managing it myself, so I didn’t have to pay for a property manager. Still, if I factored all those costs in, I probably would have been at a wash or a small loss per month, but even at a small loss, it would have been cheaper than renting a place on my own. For where I was at in my life then—traveling and being gone all the time—essentially having zero housing costs was a huge milestone.

I lived in this property for just over a year to satisfy the loan requirement (the loan required me to move into the property within 60 days, then live in it for a minimum of 12 months), then I moved out.

When I moved out, I rented the room I was living in, and here is what my numbers looked like:

Gross Rent: $1,600

Home Owner Association: $175

Electric: $100

Internet: $0 (I made the tenants get their own internet)

Mortgage: $700 (this included taxes & insurance)

Property Management: $128

Average Maintenance: $60

Average Capex: $0 (I had a one-time assessment of $250)

Net Monthly Cash Flow: $437

I was in this deal for less than $4,000 and was cash flowing around $5,000/year. Then I also had the upside of equity growth from the mortgage balancing being paid down (by my tenants) and potential appreciation.

I went from using very little cash to get a property, to living for free, then to owning a rental that gave over $400 a month in cash flow. This deal really helped lay the foundation for a solid financial future.

Do you see now why I love the house hacking strategy for building wealth and helping you achieve financial independence?

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