Have you been thinking about getting started as a real estate investor? Is beginning as a house hacker the right path for you? Is house hacking something you have thought about but aren’t quite sure how it will help you achieve financial freedom? In this podcast, we lay out a plan to start as a house hacker with an initial $50,000 investment.
- Listen to the podcast “#273: House Hacking Over a 7 Year Period with $50k Initial Investment toward $96K Net Operating Income” on the Denver Real Estate Investing Podcast
- Watch the YouTube video (at the bottom.)
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.
Real Estate Investment Planning Session
While this blog post lays out a fairly simple plan for using the house hacking strategy to build a rental portfolio, nothing beats one-on-one strategizing. If you live in Denver or Colorado Springs and would like personal assistance putting together a customized plan, check out our free real estate investing strategy consultation service.
During this process, we will talk about reaching your financial goals and how attainable it is to reach them. In other cases, an investor may have an idea of their long-term financial plans but may not know how to get there.
One key element of any plan includes financial discipline and delaying gratification now leading to financial gain tomorrow. The spreadsheet below is a roadmap that includes one possible plan to help you achieve your goals of becoming a real estate investor.
Something to consider when starting an investment journey is how you will map out a group of properties to reach your financial goals. In this scenario, we outline a four-property model, two of which are house hacks and two are straight investments.
House Hacking Investing Plan
Walking you through the plan, we are starting this investment portfolio with an investor who is a house hacker (HH). For information on what house hacking is and how to get started, check out our free Ultimate House Hacking Guide.
The first investment is a house hack that you will live in for two years before moving into the next one. The next step is to find another house hack property where you can live for around four years; this is a long time to have a house hack property. Something to keep in mind is to find a house hack property with a mother-in-law suite or a duplex where it minimizes the amount of shared space you will have with your roommates, yet you are still living for free. In the next step, we break away from the traditional model of moving from house hack to house hack over and over again.
For the third purchase, we are recommending a straight real estate investment with 25% down payment. To get here, we are also putting into the model all the cash flow from the house hack properties as a way to save toward your next investment. This strategy allows the house hacker to potentially get out of house hacking in around seven years with only one move from house hack number 1 to house hack number 2.
Take a look at the spreadsheet that includes the amount of cash needed to make each purchase. It starts with an initial investment of approximately $50,000 including some money for repairs, capital reserves for any unexpected events, and an upfront payment of private mortgage insurance (PMI). One thing to note is the amount of initial cash outlay may be less as some of our investors have taken advantage of the first-time homebuyer programs offered, such as the grant issued by the Bank of America. In addition, some buyers may qualify for the Colorado Fair Housing Act (CHFA) Down Payment Assistance (DPA) program. Conversely, it could be more, depending on the price of the investment and other factors.
Let’s recap. You start as a house hacker, purchasing a property where your roommates are covering the expenses and stay in it for two years. You do this again but stay in the property for around four more years. Then, after you have these two properties in your portfolio, each subsequent investment after that is purchased by saving the cash flow from the first two properties and we add in some personal savings that likely would have been used for living expenses, as the house hacker is living for free in both properties.
After 7 Years as House Hacker
This formula will get you into a position in approximately 7 years to move out of your house hack property and have enough equity in your investments to put a downpayment on your dream house and start cash flowing on all four properties that you no longer occupy. It is very doable and just requires an investor to remain financially disciplined and to keep their eye on the long-term goal of building equity.
By following this road map, the investor can be in their own personal residence (without roommates) at the end of the seven-year period with the option to purchase a home between $400,000 and $950,000 (in today’s dollars) with around a 20% down payment. Moreover, once settled in this new, happy home, the investor will have built approximately $690,000 in equity through principal paydown and appreciation. Wow!
Long Term Benefits of House Hacking
To expand on the benefits, this investor will have a future valuation, using some assumptions on appreciation of $1,500,000 in property value, while cash flowing around $30,000 per year (after paying their mortgage and operating expenses), which translates to $96,000 in net operating income (NOI) after the properties are free and clear of their notes. The model we built is all done in just seven-years!
From our perspective, this seems like a portfolio worth waiting for and a plan that many investors can follow!
Get started today on your path to passive rental income by signing up for a free real estate investment consultation today.