House Hacking - My Investment Property Budget
House Hacking Landlord
Want to be a landlord?
If you follow me on Instagram, and watched our first episode of Get Real {Estate}, then you know one of my goals when leaving corporate America was to subsidize my income through a rental property. By reducing my monthly living expenses, I knew I would feel more comfortable taking on a 100% commission based role in real estate.
You see I’ve always feared financial risk and failure. I grew up with a very frugal father (and grandfather) that would prefer to drive 10 more miles to the next gas station to save $0.02 per gallon. Now I’m not that extreme, but you could say that I fear running out of money when in reality I’ve never had a reason to. So to overcome this, I had to build my own solution. I bought a duplex!
By purchasing a property where my tenants covered a portion of my mortgage, I was able to live for less and take the leap of faith I’d been dreaming about for 2.5 years. Because I’m a numbers gal, I thought I would help break this down for you to give you a bit more perspective.
House Hacking - Duplex Purchase Number Crunching
Purchase Numbers
I purchase my duplex in November of 2016 for $436,000
By using FHA financing this allowed my down payment to be lower, at just 3.5% or $15,260
I also had to pay my closing costs which are typically 3% of your purchase price (in Minnesota) and came to an additional $13,080. (I negotiated for the sellers to cover a portion of my closing costs for repairs that came up in the inspection, but that doesn’t always happen so we are going to ignore that detail for this instance).
This put my all in cash to close at a total of $28,340.
Tenant Numbers
Now comes the good part. When purchasing a rental property, you inherit the tenants and leases that are already within the property. Because of that, the rental income when purchasing the property was at $1,450. My mortgage payments (principle, interest, tax, and insurance) are $2,620 per month, so my mortgage responsibility was $1,170 per month plus utilities. As tenants transitioned out of the unit though, I was able to make improvements such as new kitchen countertops, paint, and lighting, and am now charging $1,900 per month. That puts my total mortgage payment ownership at just $720. Pretty amazing right?
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Looking to the Future
Now if I were smart, I would buy another duplex, move out of my updated unit which could rent for $2,200/month, and do it all over again. However, I’m REALLY itching to buy a house. The great thing about either option is that when I move out of my rental property, I will actually make monthly income of about $1,480/month. This money can then be applied towards my next purchase to continue to mitigate my ownership of expenses.
Many people leverage house hacking like this to build an investment portfolio. It goes without saying that there are always pros and cons to being a landlord. I have been lucky enough to have some pretty great tenants over the years, and landed a solid property with minimal issues. However, if you prefer to not add more to your plate such as shoveling, lawn care, items breaking, etc. this may not be the best route for you.
Also, be sure to run the numbers and have a support system around you that has the knowledge and experience you’re looking for. I shared how important this is on Sara Schultz and mine’s mini series Get Real {Estate}. By having the correct experts by your side, they will help guide you into making good investment decisions that align with your goals.
It has been a magical experience for me knowing I am one step closer to financial freedom, and by sharing my experience, I hope I’m able to help one of you do the same!
Happy house hacking!
Jen
Investor // Landlord and DIYer // Realtor // Business Consultant // Globe Trotter // Converting Vegan.
