House Hacking New Construction to Quickly Build Equity
Today Andres Bustamante joins the show to share how house hacking new construction rapidly builds equity.
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“The bad guy is the lease, you’re not the bad guy.”
House Hacking New Construction
The Famous Six
What is your favorite personal finance resource?
Power of Zero by David McKnight
What is your favorite real estate resource?
Power of Now by Eckhart Tolle
What has been your favorite travel destination so far?
Santo Domingo, Dominican Republic
What is the biggest bucket list item you haven’t accomplished yet?
He wants to skydive or become an Arsenal season ticket holder
What is next on your travel list?
Argentina or Columbia
What is your favorite life hack?
My miracle morning routine: wake up at 4:45 am, make bed for a small win, drink water, brush teeth, and head to the gym for an hour. Return and take a cold shower, do affirmations and visualizations, read and then start the rest of the day.
Discussed In This Episode
- Focus on New Construction
- Take Advantage of Builder Lender Incentives
- Treat House Hacking as a Business
- Time Your Purchases to Get Owner-Occupied Mortgages
Books Discussed In This Episode
Show Notes
Meet Andres
Andres got started house hacking with the purchase of a new build single family residence. Since then he’s put a deposit on a second new build which has already gained $125,000 in equity.
Andres House Hacking
While a freshman at the University of Texas at Austin, Andres got a real estate license and worked as a leasing agent. While in school, Andres had six other roommates, shared a room, and paid $600 a month. He got into house hacking because he wanted a way to passively pay his rent.
When he was a junior, he sold his first property, a condo in downtown Austin. Andres’s real estate commissions paid his rent and all his college expenses for his last two years of college.
Andres graduated with a degree in international business and real estate. In the summer of 2019, he came across Diego Corzo’s podcast and became part of his Keller Williams team.
By focusing on new construction in areas where the real estate market is growing, Andres has been able to rapidly build equity in his properties.
Andres First House Hack
While watching the Superbowl. His real estate partner, Diego Corzo, told him about a new home under construction that was coming off contract. The builder only required a $1,000 deposit.
The property met his criteria, 4 bedroom, 2 ½ bath, and located East of Austin, so Andres put down a deposit.
He was able to sublease his spot in the house he shared with his college roommates by putting up an Instagram story to his 1,800 followers to find someone to take over his lease. The timing worked out perfectly, his house was ready and he moved out and the new guy moved in.
The purchase price was $286,000. He put $28,000 down (10% down). Because Andres was only working part-time he couldn’t get financing on his own so his mom co-signed as a non-occupant borrower on a conventional loan so he could get rid of PMI (private mortgage insurance).
He took advantage of a builder lender incentive of 2% of the purchase price towards closing cost and a 1:2:10 warranty: 1-year warranty on the craftsmanship, 2-year warranty of electrical, and 10-year warranty on the structural.
His mortgage payment is $1,850. Andres rents out the extra bedrooms to friends who are UT grads and gets $2,150 a month. Earning him $250 a month while living for free.
What Andres Would Do Differently
If he could change anything, Andres would not let his limiting belief stop him from doing more sales. When he first wanted to buy, he was told not to because property taxes were told high. It was a closed mind mentality.
Andres Next Move
Andres timed his second property to coincide with when he would be eligible to get another owner-occupied mortgage, one year after his first purchase. This allowed him to take advantage of a lower down payment and better interest rates.
Because the housing prices are high in Austin, wanting to lock in a lower purchase price, he reached out to his builder friends to find out which property would close in April 2021.
Andres went into contract on his second property in June 2020 for $326,000 with a $3,000 deposit. Because of the real estate market, his property is valued at $451,000, giving him $125,000 in equity.
Because of the relationship he has with lenders, he qualifies for a conventional mortgage on his own. After looking at net sheets and his goal of $200 in cash flow each month, he’ll put down 7%.
Putting down a larger down payment lets you earn more cash flow but can reduce your total return. But in a booming market like in Austin, you can have cash flow, pay down equity, and plan for appreciation.
Instead of selling his first property or renting out the entire home, when he moves into his second property, Andres will rent out his room for $800 netting him $1,000 in cash flow.
Because Andres plans to buy and hold for the long term when the individual leases end he’ll rent out the entire house.
The One Thing That Changed Andres Life
Putting into practice, Hal Elrod’s book, The Miracle Morning changed his life. Doing affirmations and visualizations helped him.
Tip: Treat House Hacking As a Business
When you house hack, issue leases for each roommate and treat house hacking as a business.
Resources
More From Andres
You can connect with Andres via Instagram @andresbustatx or his blog at https://www.househackaustin.com.
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