Today Deandra McDonald joins the show to share how she was able to retire in five years through the power of house hacking.
Meet Deandra
Deandra graduated from college in May of 2013 with a chemistry degree. After graduation, she was dealing with significant student loan bills and looking for ways to slash her expenses. That’s when she decided to go for her first house hack. Since then, she has built a house hacking portfolio that allowed her to retire in just five years!
Deandra’s House Hacking
Through a series of house hacks, Deandra has been able to build an impressive portfolio. Let’s take a closer look at how she made this happen.
Deandra’s First House Hack
Although Deandra had not heard the term house hacking, she was very interested in finding a way to lower her housing expenses. Her original idea was to buy a duplex and rent out one side. But with the limited financial power of a recent college grad, she decided to look for a single-family home with at least two bedrooms. The goal was to rent out the spare rooms to cover her housing expenses.
It took Deandra over a year to pull her finances together for her first home purchase. But she eventually found a two-bedroom townhouse within a duplex in her price range. She closed on the property for $85,000 in 2015.
Overall, her monthly mortgage was $525. When her first roommate moved in, she started charging $600 a month. That’s right; she was able to live for free on her very first house hack. Plus, the surplus rent was able to cover the utilities associated with the townhouse.
Deandra’s Next Move
After 18 months of living for free in her first house hack, Deandra started to strategize about obtaining the next door property. Eventually, the landlords of the next-door property were ready to sell. When the property became available, Deandra and her fiance discussed the opportunity. They decided to buy the property next door. With that, they were able to own the full duplex.
When purchasing this second property, Deandra’s fiance secured the mortgage in his name. They bought the property for $140,000. The higher price was justified because the duplex’s second side was a slightly larger three bedroom/two bathroom. Plus, the previous owners had spent time and money upgrading the outdoor area.
The couple put down 5% on the property which led to a monthly mortgage payment of $830. Once the property closed, Deandra and her fiance moved into the new unit. For her original unit, they sought out tenants that had pets. That boosted the flat rental rate of $1,250 to $1,400 when pet fees were included.
In addition to renting out the entire side property, Deandra and her fiance rented out one of the bedrooms in the new unit. The extra room brought in $700 each month. With that, they were able to keep their housing expenses very low.
Although many engaged couples are against house hacking, Deandra and her husband made it work. As a couple, they decided that reaching their financial goals, like paying for their wedding and keeping up with student loan payments, was their priority for the moment. Plus, they were able to separate the townhouse into different living spaces that allowed for minimal interaction between them and their tenant.
Deandra’s Third House Hack
In July 2017, a few months before the wedding, Deandra closed on a duplex in a nicer area nearby. She moved into one side of the duplex while her fiance stayed in the upgraded townhouse unit.
The duplex had 3 bedroom/1.5 bathroom units. When she closed on the property, both sides were filled with tenants. But the seller asked one side to leave so that Deandra could move in.
Deandra moved into the vacant side on some nights and on other nights she rented it out on Airbnb. With that, she was able to live there enough to satisfy the terms of the loan. But stayed with her fiance when she found a guest on Airbnb.
She bought the property for $275,000 with an FHA loan which allowed her to put 3.5% down. With that, she needed $12,000 to put down which she was able to obtain from a HELOC on her first property. That led to a monthly mortgage payment of $1,800.
When she closed, the remaining tenants were locked into a lease with a discounted rental payment of $750 per month. But the seller agreed to pay the discrepancy between the discount and market rental prices. With that, Deandra was getting $1,000 per month in rent. Plus, she was able to bring in additional income from Airbnb. On a good month, she could bring in between $2,500 and $3,000.
Tip: How To Verify A Lease Agreement
Before you close on a property, it is a good idea to verify any current lease agreements with current tenants. Consider having both the seller and tenants sign a lease agreement that confirms when the tenant moved in, the rental price, the security deposit details, pet details, and any details about the property more.
Deandra’s Apartment Building Purchase
After buying the duplex, Deandra decided to purchase a larger property in the area. She closed on a ten-unit apartment building for $160,000. With closing costs and down payment, they had $35,000 of out of pocket expenses. The building used to be a motel, so the units are studio style apartments. Currently, it is bringing in around $2,000 each month.
Deandra’s Current Home
At this point, Deandra’s husband was ready to stop house hacking with roommates. With that, they decided to go in a different direction with their current property. Instead of pursuing another house hack, they decided to purchase a home just for their enjoyment. Plus, they can enjoy the passive rental income of their portfolio to support their lifestyle.
The internal peace of this financial stability is worth the hustle it took to get to this new financial place.
How Deandra Manages Her Properties
Deandra was able to transition out of her full-time job as a teacher to manage her properties. Currently, she collects rent through money orders mailed to her PO Box, ACH transfers, and checks from Section 8 tenants. She manages her expenses and revenue with a simple Excel spreadsheet.
The Famous Six
What is your favorite personal finance resource?
What is your favorite real estate resource?
The Black Real Estate Dialogue
What has been your favorite travel destination so far?
Edinburgh, Scotland
What is next on your travel list?
Jamaica
What is the biggest bucket list item you haven’t accomplished yet?
She wants to survive in a foreign country with a different language for a month.
What is your favorite life hack?
Budget daily
Book mentioned in this Episode
03/18/2023 04:39 am GMT
How to Connect
You can reach out via Twitter, Facebook, and Instagram @deandramcdonald. Or check out her website – Deandra McDonald.
