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“We can’t cover our minimum payments on just my income. Then I really drank the Kool-aid and just buckled down. Because there is no other way. He might be insane, this Dave Ramsey guy, but we’re doing it.“
Using House Hacking to Start Over
The Famous Six
What is your favorite personal finance resource?
The Simple Path to Wealth
What is your favorite real estate resource?
Paula Pant's Afford Anything podcast
What has been your favorite travel destination so far?
The Cayman Islands
What is the biggest bucket list item you haven’t accomplished yet?
What is next on your travel list?
Austin for FinCon and Savannah, then dream trip is South Africa and Australia
What is your favorite life hack?
Outsourcing what you don’t like and figure out your routine
Discussed In This Episode
- Drink the Koolaid
- If You Can't Find One, Create a Duplex
- Make Sure Utilities Can Be Transferred to Tenants
- Ignore Index Funds and Invest in Real Estate
Sarah got started house hacking in 2020 out of necessity, wanting to live for free, and needing a safe place to live and rebuild her life after divorce.
In 2016 after getting married and buying two new vehicles, Sarah found herself $80,000 in debt. Five months into their marriage, Sarah’s husband got his first DUI totaling his new truck and quit his $90,000 a year job to work for his family’s seasonal business, creating additional debt on top of the consumer debt.
She used her $6,000 emergency fund to pay the lawyer, a transmission for her husband’s truck, and other emergency expenses. Sarah stopped auto paying her credit cards and their debt snowballed.
A friend introduced her to Dave Ramsey but it took months for Sarah to “drink the Koolaid” and follow his advice along with getting a second job as a waitress and her husband going back to his $90,000 a year job which allowed them to pay off $118,000 in debt in two years.
Sarah’s First House Hack
After reading Rich Dad, Poor Dad, and Set for Life, she didn’t want her husband to have to stay in a high-income job he hated so they decided to get into real estate investing once they paid off their debt.
Sarah convinced her husband to sell their single-family residence on 5 acres which they bought for $180,000 or $200,000 to flip. They put in $15,000 in cosmetic renovations and added a full bathroom and sold it for $235,000.
Because they had a short-term mortgage on that house, they used the $53,000 profit as down payments on two small properties, a 2 bedroom rental for $87,000 and a “postage stamp-sized” live-in flip for $119,000, which got them started as real estate investors. As they saved to put 20% down they purchased a duplex, a parcel of hunting land, and a single-family residence.
Sarah’s Next Move
Her marriage started to break down in 2019 during the renovation of their single family residence after Sarah’s husband got his second DUI and developed a drug problem when their daughter was 3 ½ months old. Because her husband did all the contracting work and she handled the tenants via Cozy and Avail, so their rentals were intact.
In March of 2020, Sarah’s husband spent over $11,000. In April, she restricted her husband’s access to their credit cards and business account, filed for legal separation, and moved in with her parents for three months.
She started house hacking out of necessity and because she wanted to live for free. Sarah’s duplex didn’t have any tenants and her ex-husband didn’t want to make any of the mortgage payments. She needed to cut her expenses because she was paying for her ex’s house, hunting land for at least a year, and was responsible for the rentals.
During a work trip to Nashville Sarah met up with real estate investor Felipe Mejia who only buys single family houses with a walkout basement that he converts into duplexes. She came home and started looking for similar homes with two egress windows in the basement.
She found a ranch-style home property with a walkout basement for $280,000. Sarah used a private money lender, a family member, for a no down payment, interest-only loan at 4% for a year, rather than a traditional loan because after the drama her ex put her through, she needed stability.
Her family member lender carried her for the taxes and fees with Sarah paying $850 a month until she found a tenant. Once the unit was rented at $1,300 a month, she sent that money to her lender to cover the taxes and fees they fronted her.
Sarah added a bedroom and drop ceiling to the basement and refinanced the house into a 30-year conventional mortgage at 2.6%. Her mortgage payment is $1,385. The main house will rent for $1,400 after her current tenants leave.
Biggest Mistake and What She’d Do Differently
Despite her crazy year, she wouldn’t trade her experiences because it has made her stronger. But Sarah would be more diligent when buying a home to make sure tenants get their lease, she gets copies of all utility bills and makes sure they can be transferred to the tenants. If the utilities can’t be transferred, then those rates have to be built into the rent.
She gets to start over when the divorce is final. Sarah and her ex agreed to sell all five rentals and they split the proceeds after she’s reimbursed for the mortgage payments she paid this past year.
Sarah’s Best Deal
Sarah feels her best real estate investment was her current house that she’s house hacking. She got a $2,000 check after closing and she was able to make a plan and execute it.
She plans to stick with real estate and ignore investing in index funds because they’re a safer bet.
Tip: Creating Income Suite in a Basement
If you can’t find a duplex, look for homes that you can turn into a duplex. Homes with a walkout basement and egress windows or homes with a detached garage. Then you can turn the basement into an income suite.
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