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“Tenants will tell you everything they can dream of to stay in the property. But you just have to be a business.“
House Hacking in Your 40’s to Retire Early
The Famous Six
What is your favorite personal finance resource?
Set for Life by Scott Trench and Capitalism.com podcast by Ryan Daniel Moran
What is your favorite real estate resource?
Bigger Pockets and The FI Team podcast
What has been your favorite travel destination so far?
Hawaii and Glacier National Park
What is the biggest bucket list item you haven’t accomplished yet?
He wants to complete an Ironman Triathlon
What is next on your travel list?
Montana, Florida, Mexico, and Palm Springs
What is your favorite life hack?
Trying to be happy in the present instead of being happy when…
Discussed In This Episode
- House Hack Primary Residence
- Be Clear on Rental Listings
- Female Only Tenants
- House Hacking is a Business
Dan is currently house hacking the basement of their current house. He and his wife have 15 units across two states: Michigan and Colorado
He lives in the house she bought. She did a 1031 exchange for a 3 bedroom, 2 bath single family residence in Colorado after selling her property in California. Initially, they rented it out for $2,100 a month but the tenant stopped paying rent for three months so Dan and his wife evicted him and moved in.
The tri-level home has a bedroom and bath on each floor, not including the basement. The basement has a bedroom, bathroom, and large living space. Dan considered Airbnbing the basement but the HOA doesn’t allow short term rentals under 30 days so they rented out the basement to a long term renter.
Dan paid $615,000 but with his wife’s 1031 exchange, they were able to put $200,000 down resulting in a mortgage of a little over $2,000 a month. The home is in a great location, an “A” location. The fully furnished basement rents for $1,000 a month including utilities. The lease is a 30 day month to month.
Be Clear on Rental
He did some cosmetic upgrades after moving in. The basement doesn’t have a separate entrance so tenants have to come in the main entrance and go downstairs. The laundry is on the main floor and it’s shared between Dan and the tenant.
Dan makes it clear on the listing and during the showing that the basement only has a hotplate and there is no access to the kitchen. He thought they would rent to travel nurses but that didn’t happen.
Female Only Tenants
He rents to females because his wife, who works from home, is more comfortable renting to a woman. Colorado allows gender specifications when renting space in your primary residence.
Their tenants have been females in professional jobs. The longest tenant was two years and the shortest five months. The basement is listed in all the rental platforms but all their tenants have come from Craigslist.
“If buying a property with the intention of short term rentals, you definitely have to look over those HOA docs.” Even if it’s allowed, it doesn’t mean your neighbors are going to be friendly to your guests.
From a B- to an A+ Home
Before moving into the house, Dan and his wife lived in a 2 bedroom, 2 bath condo in a “B-” location that they put 5% down on and lived in for a few years. He rents out the condo for $1,450 a month. Because they house hack the basement Dan is paying about the same to live in their home with more space and a garage.
Dan believes you can be any age to house hack. “If you’re talking about $12,000 a year in extra income that’s a game changer.” The inconvenience of someone living downstairs is worth it.
He plans on staying for 2 or 3 more years, possibly longer. When their child gets older, they may consider moving to a location where there are more children. But he likes the yearly $12,000.
The tenant’s family paid most of the money but Dan and his wife lost about $2,000 to $3,000. Dan accepted a partial payment so the tenant would vacate allowing Dan and his wife to move in.
What Dan Would Do Differently
Don’t accept partial payments
When you accept partial payments you can’t evict for that month.
Stick to the Lease
If they don’t pay on time, they are late. Dan’s leases include a surcharge for each day the rent is late. Once its gets a month past overdue, start the eviction process.
Consider filing your pay or quit notice and the day after rent is due to get the clock ticking.
Screen tenants well
Lay out the boundaries or guidelines when house hacking. Especially if living where there are multiple people living in the same space
Quality deals over quantity
Pro Tip: Even great tenants can stop paying rent
Despite great credit, decent income, and passing the background the tenant went through financial difficulties due to a divorce and wasn’t able to pay his rent. The tenant kept coming up with excuses on why he couldn’t pay the rent and Dan and his wife let it drag on too long.
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