TikTok Challenge- House Hack | Millennial Money Matters

Description

On this episode of Millennial Money Matters, Kelly and Derek tackle the trending topic of house hacking, as seen on TikTok. With social media buzzing about how millennials can turn their homes into income-generating assets, they break down the concept, discussing what house hacking really means, the potential benefits, and the risks involved. Whether you're considering renting out part of your home or diving into the world of real estate investment, Kelly and Derek will guide you through the do’s and don’ts of house hacking, helping you decide if it’s the right move for your financial future. Tune in to get the real scoop on this TikTok trend!

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Transcription

Speaker #0
Welcome to another episode of Millennial Money Matters with Derek and Kelly. Kelly, how are you doing?
Speaker #1
I'm good. I'm good. It's like, you know, finally getting warm out, feeling good.
Speaker #0
Yes, I know. I live in New England, but I'm not a winter person at all.
Speaker #1
Oh, see, I am a winter person in December. I love winter in December. She just has specific month. I want it to snow in December. I want Christmas to be white. I want it all to be glorious. And then I want January to roll around and it to not be cold and snowy anymore. But this is like the worst, this like lingering cold where you're like, just kind of just be 85 degrees and sunny. Thank you.
Speaker #0
Yeah, that'd be nice. Yeah, I would actually just love to just trade one more month of winter for summer. I'd be happy.
Speaker #1
But like summer, summer, like August summer or like June summer? Because that's not the same thing in New England.
Speaker #0
June summer.
Speaker #1
June summer. Yeah. August summer is the, it's like, I don't need it to be 95 with 95% humidity, then thunderstorm in the afternoon and ruin all your activities. Right.
Speaker #0
No, I agree with that. That's good. So, uh. Any fun kid parties you're going to? Because I feel like I'm getting swamped with kid parties lately.
Speaker #1
Okay. So you have two kids.
Speaker #0
Two.
Speaker #1
I have three kids. And so kid birthdays just get multiplied. The more kids you have, the more kid birthdays you have to attend. We could go to a kid birthday probably two days a weekend for the entire year between all my children. And kid birthdays are like, if they're your friends, it's cool because you go, you have your high noon in their kitchen, and the kids terrorize the house. You leave. It's fine. Or you're like commiserating at the bounce house place together. But when you're at like strangers kid birthdays, it's the worst.
Speaker #0
Oh, I'm all in the stranger kid birthdays because my kids are little. So it's all like the daycare ones. It's like, you know, I'm like meeting friends. Like, do I be cool? Is this a cool parent? Is this a nerdy parent? Like you're trying to like scope out the whole scene because you're like, probably going to live with these people for like 15 years, right? Moving forward.
Speaker #1
Well, and you have the awkward like, hey, you've got kids. I've got them too. We have something in common. And you're like, no, actually, we don't, Liza. No,
Speaker #0
I'm not really. They're like, oh, but our kids are both the same age. You have two. We have two. Nope. Nope.
Speaker #1
Nope. Well, and then you also learn that there are more indoor bounce house trampoline facilities in the state of Connecticut than you ever knew existed prior to having kids, right? You're like, there's one in every strip mall.
Speaker #0
Oh, yeah. Well, I think we went to one recently that was clearly like way too big, like way too adult for them because like it was a laser tag slash arcade and the arcade section was like. murdering zombies with guns.
Speaker #1
Awesome. Love it. Good for five-year-olds.
Speaker #0
Which is awesome for a five-year-old. Yeah. Yeah.
Speaker #1
Perfect. Perfect. And like murdering each other with lasers, also perfect. Yeah. Like this is great. We went to one at a bounce place, like a trampoline place, and it was cool for like an hour. And then an hour in, another party came and my kid was six. The other party, I think the average age was like 13. So these 13-year-olds were like bouncing these little kids off trampolines, beating them to death with like the sumo sticks. And yeah. I was like, I think we're going to go now.
Speaker #0
Yeah, they're probably, we're going to be so much fun. We're going to be fun for these kids. And the kids are just like, oh my God.
Speaker #1
Yeah, crying, crying. Speaking of crying, what are we talking about today?
Speaker #0
We are going to talk about house investing, house hacking, as the TikTokers say.
Speaker #1
The TikTokers say, yeah, house hacking in the real estate world is like a buzz term that we hear all of the time. So if you hear house hacking, what do you think it means?
Speaker #0
In my head, I think it means like, hey, I've got a roommate who's going to pay me some dough.
Speaker #1
All right. All right. And that is sort of the very basics of what house hacking is, right? It's you are going to own a property and someone else is going to help pay your mortgage. Okay. The trick with it is, is there's a lot of different ways to do that. It's not as simple as, oh, I have somebody paying me rent who lives in my unit. It could be that you could have a, we call that a border. Okay. So you own a property and you maybe rent a bedroom out, even if it's your friend, they're a border, they're paying you rent towards your mortgage. You could buy a multifamily. And a multifamily is a house that maybe is a duplex or a three-family or a four-family where it's an entire separate unit that they are renting. Two families, super popular in this area. There's a lot of those. You also could have a property called an ADU, which is a main house with a small colloquial known as in-law apartment or tinier unit attached to it, also becoming slightly popular. Or you could also just have another freestanding separate unit. So you could own a single family home and you could also own a condo. or own another single family home. And all of these are ways to generate income and help pay mortgages.
Speaker #0
Well, the other thing my buddy did that I thought was kind of house hacking light maybe is you move into a kind of a crappy house. It was a starter home. He fixed it up himself. He lived in it for three or four years, then he sold that as well. So that could be another avenue to look at. But I'm a little curious from the mortgage standpoint. So like, okay, I'm a 25-year-old. I got my buddy moving in with me. I got an extra room. Are they counting that? do I need like a professional lease? Or just say, hey, here's my Venmo. It has a little house emoji. So that means it's going to be rent.
Speaker #1
So it really depends. So the situation where somebody is a boarder, there are a few loan programs that allow for boarder income to be counted towards your monthly income on a mortgage. But generally, no, we're really qualifying you based on your income, your debt, your assets when you're buying that house. The benefit for you is just, you know, your mortgage is two grand a month. You know, your roommate's going to pay you a grand. these numbers make sense for you, right? The more common, when we hear house hacking, and there's a lot of videos all over the internet about it, people talking about if you want to create generational wealth, you got to house hack. Some of the advice in them is great. Some of it is highly illegal, okay? Highly illegal. So we're going to break that down a little bit. But the most common way to do it is to buy a multifamily house, all right? So why do they want to do that? Well, if you buy a multifamily house as an investment property, meaning you are not going to live in that house, you generally have to put a lot down, right? 25% is... the norm. And that can be very expensive. And so for a young adult who's maybe just starting out, hasn't bought a house yet, they may not have 25% down to put on these houses. So they want to do it as a primary residence, meaning they're going to live in one of the units and they're going to rent either the second unit or the second and third unit if it's a three-family out. And that's really the house. I'm making air quotes right here into the microphone. That's really the house hack that people are talking about. I'm going to buy this as a primary. I'm going to live in one. other people are going to pay my rent from these other units and I'm essentially going to live for free. That is actually a pretty smart move. What can I do for you? Well, let's just break down a little bit of math. So you're going to buy a duplex and say it's $400,000. And that sounds outrageous right now, right? You're like, well, as a first time home buyer buying a $400,000 duplex, they might be because we're going to be using income from these other units, right? To help offset their income and allow them to qualify for more mortgage. When they do that, what they're going to do, say their mortgage payment is $2,500 a month. Okay. And this is worth talking about a two unit here. They're charging $2,000 to the other unit to live in there. So that essentially makes it so their rental, because I'm, and I'm making air quotes again, their rental payment to themselves is only $500 because that's what they're missing out of their mortgage payment. Right. So wouldn't we all love to have $500 a month in rent right now?
Speaker #0
That'd be great.
Speaker #1
That'd be great. Now, what if... these units, you've got two units. What if they're each three bedrooms? So you've got three people living in the unit next door and they're paying two grand a month total. And you've got three people living in your unit. You are one of them. And the other two guys are both paying 500 bucks. Now your mortgage payment's covered and you're making an additional $500 a month. So you're not just living for free, but you're making money on this. Now, do we really want to do this in our forties? Probably not. But like in your 20s, when you're living with roommates anyway.
Speaker #0
I had roommates basically until my wife. Is my wife kind of a roommate?
Speaker #1
Well, yeah. Yeah. Until you got to that point.
Speaker #0
I basically had roommates my entire life, adult life. Yeah.
Speaker #1
And I think most of us, again, I think that's kind of the millennial jam. Most of us have. You have roommates in college and you kind of never really stop until you move out either, you know, when you get your big kid job with a spouse, a partner, you know, a more permanent situation. But that's really sort of the house hack. Now, where it gets a little bit crazy on the internet is they talk a lot about these primary residence mortgages. And, oh, you only have to live in it for 60 days. Oh, just say it's going to be a primary residence, but you don't actually have to live there. This is the part where it becomes illegal. That's called mortgage fraud. And we've talked about mortgage fraud in some episodes before where that's a big deal. Mortgage fraud is investigated by the FBI, not your local police. You do not want to mess around in that. So generally, when you're signing a mortgage note, you're... kind of asserting that you're going to live in that property for at least one year. Now, should you do it if you know you're going to move out in one calendar year exactly? You're like flirting on the edge at this point, but the government does know that like people's plans change. Maybe you bought it and your job moved or something like that, right? But if they notice a pattern of it where you buy, say, a duplex, you move in, you live in it for one calendar year exactly, 365 days later, you're closing on your next duplex, which is... also a primary residence. You live in that one for 365 days and you close on your next duplex. And that's what a lot of these house hacking videos are encouraging you to do, right? Like you're just going to go from one to the next one to the next one. That's where you get yourself in trouble.
Speaker #0
Well, I mean, come on. We're talking about the government here, Kel. So... How are they going to possibly catch you?
Speaker #1
Great question. They care, okay? So they will catch you from a couple of different ways. Number one, underwriters and loan officers are trained to look for this kind of fraud. So as you're applying for additional mortgages, we're going to go, huh, there's an interesting pattern here. And it's pretty easy for us to really look at intent. So that's one of the things that we look at in mortgages is what is your intention? are you going to occupy this property? Can we really prove you're going to occupy this property? And does the occupancy make sense? So for example, say you own a beautiful single family home in a nice suburban town that's worth a half a million dollars. Okay. We know you're, maybe you're married and you have three kids. We look at your income, everything looks great. And then you tell us you're going to buy a three family in a more urban area that only has two bedrooms in each unit. And you're going to tell me that that's going to be your primary residence. People do this all the time. they try to do this. And we go, huh, does this make sense?
Speaker #0
Or you kids have a job that we don't know about. They're paying rent for you. Yeah.
Speaker #1
Like, what are we doing here? Why your kids now don't have enough bedrooms. Your income has not changed since when you bought that original single family. So there's maybe not really is a reason to downsize. Oh, but by the way, I'm going to keep that single family. I'm going to rent that out, too. But I'm moving to this multifamily. This is all red flags for a mortgage loan officer and for an underwriter. So that's one way they catch you. But honestly, especially state bond programs like the Connecticut Housing and Finance Authority and other programs like that, they actually have people that it's their jobs to check up on occupancy. OK, they will send door knockers to knock on your door and say, hello, who are you? Can I see your driver's license? Do you occupy this home? What do you occupy this home with? Because they're looking to see if the person who signed the mortgage saying they're going to live in that house is in fact who's living in the house. They will also do things like contact. Say you've got municipal trash pickup. They will go online. A lot of this stuff is public record. And they'll say, huh, who is the trash pickup registered to? That is not the person who bought the house. They will look to see whose cars are registered to that house. They will look to see where is the mortgage statement being mailed? Is it being mailed to the address that you're supposed to be living at? Or, oh, that's weird. This address is at 123 Main Street. It's the primary. But it's this mortgage statement's being mailed a few blocks away to a different address. This is all red flags.
Speaker #0
And that's easily trackable.
Speaker #1
Easily trackable.
Speaker #0
Yeah. You could, all that's public. You can easily look that up and it's not like they will not like it to be too, too, uh, sure. Like homesy to, to get, get that done.
Speaker #1
Exactly. But if you're going to house hack in the truest sense of it, where you're going to use an opportunity like this to build wealth, it can be awesome. So I have a great story. I have a client, um, who about 10 years ago, he bought, he was a young guy in his early twenties. He bought his first duplex. So he is from Manchester, Connecticut. Uh, there's a lot of duplexes to be purchased there. So he bought it, uh, um, duplex in really rough shape. So he bought this duplex. It was in rough shape. He spent two years fixing it up. He lived in it while he was doing it. He actually wasn't even able to rent one of the units out for almost a year because he had to put in a new kitchen and a new bathroom. But he spent all this time fixing it up. And he bought it, this was 10 years ago, for about like $140,000. Okay. And he probably put 50 or 60,000 into this complex, into this multifamily. He lived in it. He lived in it for four years. At the end of four years, he called me and he's like, hey, there's a three unit down the street. The main floor is bigger than what I'm living in now. I'm going to buy that one and move into it. Now, we had no reason to not believe him. It was a bigger unit. It was down the street. He did have roommates. There was no family that we were talking about. Nothing like that. He had lived in there for a few years already. He had no history of flipping. And we went, cool. All right. That sounds good. He bought the three unit. He did the same thing. So now he's renting out his duplex. He's got two people. and they were actually, their two rents were paying more than the mortgage payment. He took equity out of that house. So this is one of the big tenants of house hacking. So he took a home equity line of credit out of the first house. That was the down payment for the second house. He renovated that house. He lived there for another two years. He lived in one unit, fixed the other ones up. And at the end of it, he said, all right, I've been here for a couple of years. And he went and bought a beautiful single family home. He ended up with a partner. They were going to get married, have kids. So he now owns five units, income producing units. The second unit he managed to refinance when rates were really, really low, had a very low mortgage payment. And he was renting each of the units out for $1,800 a month, the first unit he was renting out. So he was clearing triple the two mortgage payments put together in monthly income from these. So he was just paying these mortgages down as quick as possible. Well, now he has the income to actually buy investment properties. So now we're in a position where he actually owns 10 separate buildings. he now can put 25% down on them because he's making enough money from these. And he actually quit his full-time job. So his full-time job now is he's a property manager. He owns all of these units and he's moved out of all residential. He's got some commercial units now. He's got some six units, which are bigger than what a residential mortgage loan will allow. But this is like his business at this point. And he started as like a 23-year-old guy who was just kind of looking for somewhere to live.
Speaker #0
All right. Why don't we kind of peel back the onion on this a little bit? Because I think this is a great case study to look at. So- He's what, 22, 23 when he started? Yep. So what did he have to put down in the first set of house? Is it 3% down? Was it the 20% you were talking about?
Speaker #1
So he used an FHA mortgage, Federal Housing Administration home loan, and he needed to put 3.5% down.
Speaker #0
Okay. So not a huge lump sum of money. I mean, you got to put some money in to fix it up. So that's another thing to think about. So if you are looking, okay, do I put 3% down on a quote-unquote ready-made move-in property? Or do I have some extra cash on the side to help renovate it? Because that's obviously going to push the value up, but you got to put some work and some money into it.
Speaker #1
Yeah. A little sweat equity goes a long way. We also really recommend for somebody who, and I have a lot of conversations with my multifamily buyers about this, is what do you have left at the end of this transaction? Okay. If we're going to deplete every dollar that you have, right? Like I need $20,000 to close and you have $20,100 to close. If you're buying a single family home, that makes me nervous. If you're buying a multifamily home, that makes me extra nervous. Because what happens in a multifamily? Well, number one, you are responsible for... the upkeep and the maintenance of the other unit, even if you're not living in it. What does that mean? If the fridge dies, you're buying a new fridge. If the toilet gets clogged, you're paying the plumber. You are in charge of that unit. The landscaping is you. Generally, the plowing is you. Whatever needs to happen to that unit, you are in charge of. So you do need money in reserve because you're now responsible for two households.
Speaker #0
Right. And anything can go wrong and that tenant is not taking care of that house as much as you would probably think they or want them to be.
Speaker #1
Exactly. So that's number one. Number two, you can have vacancies, right? And sometimes it's not, especially here in Connecticut. I highly doubt you'd have a long vacancy, but what if you've got a tenant moving out in June and your next tenant isn't going to come in until September? You might need to float that payment for a couple of months. We want to make sure that you have the money to do that. We again, call that reserves. And then the other piece to it is... generally in between tenants, you are going to have to go in and do maintenance to that property. You might be replacing carpets, redoing hardwood floors, painting in order to get the unit ready for the next tenant. It is not the exiting tenant's job really to fix that. And you may have a deposit on the tenant that has left, but there's a lot of rules regarding deposits. So you can't just say like, ah, it's not in great shape. I'm going to keep your $2,000 deposit. You have to give them an itemized list, receipts, what kind to get fixed. you have to behold that money in escrow during the time that they they're living in your unit so there's a lot of rules associated with it so i generally tell people it's probably in their best interest to have at least three months of their mortgage payment saved in reserve that we do not need to live on before you really undertake being a multifamily homeowner yeah i mean that's i think that's great advice because anything can go wrong um tenants
Speaker #0
can move out on you at a moment's notice and you know this is i mean especially depending on what state you're in because tenant-friendly states exist.
Speaker #1
We don't live in one.
Speaker #0
Well, that's good. Well, my property is a mass that I have. So that's a very tenant-friendly state.
Speaker #1
I actually said it the other way around. We do not have a landlord-friendly state in Connecticut. We have a very tenant-friendly state in Connecticut. And that's the other thing is you could have, you know, a tenant that chooses to not pay you. Right. Right. So you could have somebody living there where you can't rent it out and you're not getting money, money from it. And that, right? Like, what are you going to do? the eviction process in Connecticut is long and expensive. And again, they're always going to err on the side of the tenant here. So you want to make sure that, again, you have reserves to make up for it. Now, what can you do to combat that, right? So how do you make sure you have a good tenant? A couple of things. Background checks are imperative. There's lots of online programs and online systems where you can do background checks. You want to do a background check. Some landlords require their tenants to give them a copy of their credit report. It's not the worst idea.
Speaker #0
I did. You did?
Speaker #1
Yeah. Because then you can see, do you have any prior evictions? Do you have any foreclosures? Do you have any bankruptcies? Is there anything huge? Now, I would tell you, if you were just a layman, you looking at a credit report probably isn't going to be the most helpful thing because people don't really know how to read credit reports. You probably want to work with a professional. Realtors can help with this if you're using a realtor to help rent out your unit, but you want to look at a credit report. Requiring some sort of security deposit, a lot of times it's first, last, and one month security is common. But also, can you find a tenant that you know? Is it a friend of a friend? Can somebody vouch for them? Is there somebody's daughter or somebody's son or something like that? That can all really, really help when we're talking about how to vet your tenants.
Speaker #0
We also ask for income verification too. So we want to make sure, okay, can they actually afford to live here? I mean, credit report is nice. It says, hey, we do pay our bills on time, which you definitely want. But if your rent is too much for them to afford, you might want to. Make sure you have a good idea of what's going on with that. I did want to double back on one thing you had there with the home equity line of credit, because I don't know if our listeners are going to know exactly what that means. So I don't know if you want to get into explainer or you want me to kind of explain my experience using the home equity line.
Speaker #1
Is that what you did? Yeah. Let's talk about it. If you're the real life study of it.
Speaker #0
All right. So we didn't exactly house hack. So I used to live in Boston. My wife and I bought a condo in South Boston. We lived in there for about four years and then we decided to move to Connecticut because the home prices were literally half the cost of the ones in Massachusetts.
Speaker #1
Which is wild for those of us in Connecticut.
Speaker #0
Yeah. Well, I mean, we had incredible time because we were really February 1st of 2020. So like I was going under asking on offers, which is like unheard of nowadays. We're like, yeah, how dare you? I'm going to listen advice from you. This is all timing. So what we did is because we wanted to keep the house is we were going to say, okay, well, let's take the equity that we built up because we put money down into the condo. So we had equity built up from the money we put in plus the price did appreciate a little bit while we were living there so we had a little bit of a buffer so a home equity lets you say okay you've got you owe let's say let's say the house is 500 000 and you owe 300 you have 200 000 that is essentially quote unquote yours right so they'll let you do up to 80 loan of value and so in our instance we took about 100 000 out use that it's an interest only loan for 10 years so if the cash flow is an issue it can be a really good cash flow thing because you're only paying interest That said, you're not paying down any of the principles. So you can still have that debt there hanging over your head. But that's where you really have to do the numbers and make sure it's worthwhile to bring the tenant in. Are you getting clearance from that? But that could be a good way to get equity out without having to do like a cash out refi, for example. The other thing to watch out with the home equity lines is it's a variable rate. Yeah. So what you start off with, the rate will go up as we've experienced.
Speaker #1
Yes. And that's where the timing wasn't great for you in that sense of you probably got that when the rate was very low and you're like, this looks great. And now we're here in some, I'm going to say historic high rates. They're not historic in reality, but for us millennials, we can call them historic because we've never seen them before. We have not. And rates that don't feel the same as they did when you got that home equity.
Speaker #0
But I will say our home equity payment doubled basically because the rates went up.
Speaker #1
Wow. Wow.
Speaker #0
The good news, we had enough buffer in the rent to handle it. But that's something you have to consider if you're going to go down that road, because it's not like, oh, cool, my payment's $400 a month, and it'll stay that way forever. It's like, uh, uh, uh.
Speaker #1
Not so much. Now, the same token, rents have also gone up, right? Correct. So there is some wiggle room. Now, have you had multiple tenants in your condo? Or have you had the same tenant?
Speaker #0
I have actually had the same tenant the entire time.
Speaker #1
Well, that's a bonus right there.
Speaker #0
Yeah, she's great. A little needy sometimes. She asked me to move an air conditioner to three floors down to the basement, which I was not going to do, which I let her borrow. said air conditioner.
Speaker #1
You're like,
Speaker #0
that is not on my lease. It's fine.
Speaker #1
Now let's talk about leases. So how did you write up a lease? Did you just go on the internet and download a lease?
Speaker #0
No, no, I did not. So I used a real estate agent that I trusted. And he helped me with the whole lease process. He actually helped me vet him. So if you're trying to do all this stuff on your own to save some money, at least the way in Boston works, the tenant actually pays the first month's fee. So it's a weird situation where the landlord actually doesn't pay the person to work for them. the person moving in does. So if you're in Massachusetts, like hire a real estate agent, because you do not pay for their services and they help you out. They don't help the tenant out. So yeah, they have an attorney that they put up the whole lease. They laid it out for us. They did the background check for us. They did all that stuff. So I would have paid the money for that because to me, it's the insurance you have is essentially you vetting the tenant right ahead. And you're using an expert that has like, that's my first time being a landlord. I had no idea like, I don't know where I would get these leases from.
Speaker #1
What needs to be in the lease?
Speaker #0
Yeah. What, yeah. What doesn't need to be in the lease? What are some things you can negotiate? Like any of that stuff you really want to make sure you have. Um, like my tenant was kind of asking about, Hey, like I don't have a dog, but if I got a dog, I'm like, Nope,
Speaker #1
Nope,
Speaker #0
Nope, No dog. So I was, it was like, I was adamant about that. Um, so there's definitely things you can add and have them add in the lease. So that's typically what I would did. So I didn't, I'm not an attorney, but I would at least hire an attorney if you don't want to have a realtor come in and help show the property. Uh, but to me they were worth it.
Speaker #1
All right. 100% agree with that. So in my line of business, we do see a lot of leases sometimes from landlords who are trying to buy another property. We end up getting all of their leases. And I have seen some spectacular leases and some absolutely terrible leases. Leases written on the back of restaurant napkins, like, you're going to pay me $1,000 a month. Thank you. A lease is protection. And think of it as insurance almost, where that lease is going to be if your tenant decides to stop paying and you have to evict them. everything needs to be spelled out in that lease.
Speaker #0
Like if you go to a court, are they going to laugh you out of the courtroom? Correct. Are they going to look at this and say, okay, this is legitimate. This is something that they're a breach of contract because this is contract we're talking about. Yep,
Speaker #1
yep. And exactly. So I would tell you having a good real estate attorney is imperative in this process. And that's something that as you're working with your loan officer to purchase the property and your realtor to purchase the property, like start having conversations. There are real estate attorneys that really only do purchase transactions, but there are real estate attorneys that also specialize in things like tenant law. who can set you up from the get-go to have these leases, to be prepared for evictions, to be prepared for all of that sort of stuff before it actually happens. Because it can get really dicey if you are not prepared. And it can get really dicey if you are, again, downloading things off the internet. You're like, there's a ton of websites out there where you can pay $25 and download a residential lease. But what state's that for? Who has vetted it? Yeah, because... again, different states, as Derek said, have very different tenant laws.
Speaker #0
Yeah. And I think the other thing for me is they actually laid out like what's expected of the landlord and what, what, like what's your response and what's not. So like me moving an air conditioner was not in the lease.
Speaker #1
Yeah. So you're like, no, you're on your own. Well, what's some other stuff to, to pay attention to? So I have a couple other, where can this go wrong? Okay. So number one, evictions. That's the number one place where multifamilies are owning other units go wrong. You have somebody who stopped paying. Now, sometimes people stop paying because they're jerks. Okay. Sometimes people stop paying for legitimate reasons. And now you're dealing with sort of the emotional aspect of it too, where, you know, you, maybe you have somebody who has an accident or an injury or an emergency and they can't afford to pay you. So you're like being nice and you're no longer following your lease and you're not charging them interest. And you're like, it's okay. Get it to me a little bit later. And that can actually open you up for, for legal proceeding. So if you don't follow your lease, that can get you in trouble. So you have to be really careful. Another thing, especially in multifamilies, if you are living in your multifamily, you are both the landlord. and the neighbor. So the blurring of your personal life and this business that you own can be really big, right? So, you know, it's one thing like your tenant lives in Boston. So for her to get to you, she's got to call you on the phone. She can't come bang on your door at two o'clock in the morning. And if you were living right next to your tenant, that can absolutely be the case. You could get the bang on your door and the doorbell ringing at 2 a.m. What if your tenant is crazy? What if they're really dramatic? What if they're really high needs and you are living next to this person? You can't just evict them because you don't like them. Right. Right. You could be stuck with a lousy neighbor because you pick poorly in your, in your tenant search.
Speaker #0
Well, I think you, you said that the, probably the, the key point here is this is your business. Once you start doing this, like you get a tax return and you pay taxes on this. Um, this is a business and you have to treat it like a business. So if you're living next to a quote unquote friend or anything like that, you've got to be real clear with all of this stuff. Uh, or even don't try and make friends with your, your tenant. I mean, it may be a cool person that may be great, but like.
Speaker #1
there's some liability that you can look out there and i don't know i would just i'm glad my tenant lives in a different state i'll just say that well and sometimes what people do especially when they're living on site is they will not tell the tenants that they are in fact the landlord they will use a third party property manager to manage things and they will just kind of pretend they're another tenant and that can sometimes ease the pain a little bit of living next to the person um because they may not even know you're the owner of the home right They may not even know. Something else to keep in mind are city and state rules and laws regarding owning a property. So things like some states and towns have a maximum number of occupants, right? So you can't necessarily just rent, like you've got a three bedroom, you can't have six people in it. You might only be able to have three people in it. You need to know that before you start renting these properties out. And sometimes again, in like house hacky world, we'll see some of those videos on. online where, yeah, you're going to put bunk beds in each room and you're going to stack these rooms and you're going to have 12 people living in the three bed. That might be very illegal in the state that you're living in or the town.
Speaker #0
Yeah. So don't stuff people in drawers.
Speaker #1
Don't stuff people in drawers. Also things like egress. Okay. So that's a big one. If you are renting a property out, you have to make sure that there's proper egress in case of an emergency or a fire. And you might be like, basements are a big place. This happens if you have a finished basement. Okay. I mean, there's rooms down there. You might be like, that's cool. Well, if they only have those little tiny windows at the top, that may not be proper emergency egress. And if an emergency ever happened, you could get cited. You could get fined. There's a lot of negative stuff that could happen. So you want to make sure, again, before you're renting these out, that you have proper egress. You know how many people are allowed to live there. You meet codes for things like fire suppression, fire alarms, CO alarms, all that sort of stuff. So you need to do your research. We can't tell you what that is because it is very city-town jurisdiction specific.
Speaker #0
Wow. Okay. So you talked about all the bad stuff. Is there anything good about house hacking?
Speaker #1
The big thing is, right, people are trying to afford houses in this market. And again, if you can get into a property, be paying yourself rent along with having other people pay you rent, it can really help build equity. Again, we hear that term generational wealth a lot in these house hacking videos. House hacking, if done correctly, can absolutely be a great investment and a great way to build generational wealth. I would just tell you that like... TikTok videos, Instagram reels, they may have some good tidbits in them, but you have to do your own research to the laws, the rules, the regulations of your area of your state. You have to know what you're allowed to do and not allowed to do. And you also just have to make sure that you really understand your own finances before you're taking on the responsibility of other people's finances. Because when you have tenants, again, you're dealing with your own financial situation, but you're also managing other people's as they have to pay you and pay you on time.
Speaker #0
Right. I mean, so that's where, if you don't know... Ask a professional. There's people that have been through this. Ask them. But to me, this could be a phenomenal way to build wealth because one of the ways I look at it is mortgages stay flat. Your mortgage payment is the same moving forward. The only thing that changes is your insurance and your taxes. Yep. but your rents can go up. Every year.
Speaker #1
Every year. And again, what I always tell people, say you rent an apartment for five years. At the end of five years, what do you do? You hand the keys back and you got nothing. Nothing. If you own the property, you sell it. And are you going to get 100% of your equity back that you've paid into it? Maybe not. Right now, yes, because the market's great. In regular markets, maybe not. But even if you got 50% of what you paid back, you are farther ahead than you are if you're renting. There's no doubt.
Speaker #0
And hopefully you're cash flowing because that should be the goal of you renting. So if you're losing money, five, 600 a month, it's probably not the best. Move on. I think that's one thing where don't force it when it comes to looking at property. Have some metrics for, okay, if I buy it for this, the mortgage is going to be this and the rents in the area are that. So if the mortgages are two grand all in with all the costs and your rents are 1,500, probably not the best investment. So think about that that way. You know, if you put in 50 or 60,000 and you can get, you know, five or 600 a month in cash flow, that's an awesome return on your cash. Awesome. Because there's a nice leverage piece to real estate that we're not like, you know, normally getting on other investment vehicles. And then there's also, I mean, I'm not an accountant, definitely talk to an accountant on it, but you have depreciation opportunities and rental properties are very tax efficient. The code is very helpful for those that want to invest in real estate. So if you're complaining about paying too much in taxes, I mean, you're not gonna be able to offset your income with it, but there's a lot of opportunity there for those that do want to, you know, learn about house hacking and how to do it.
Speaker #2
And if there is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes, the purchase of certain securities may be required to affect some of the strategies. Investing involves risks, including possible loss of principal. The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

About Millennial Money Matters

Welcome to "Millennial Money Matters," your essential guide to navigating the world of finance as a millennial. Hosted by Kelly Turner, a mortgage loan officer, and Derek Mazzarella, a financial advisor, this podcast offers straightforward, practical advice on managing your money.

Kelly and Derek tackle topics like budgeting, student loans, real estate, and investing, breaking down complex financial concepts into easy-to-understand tips. Each episode delivers actionable insights and real-life stories to help you make smart financial decisions and secure your future.

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Description

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Transcription

Speaker #0
Welcome to another episode of Millennial Money Matters with Derek and Kelly. Kelly, how are you doing?
Speaker #1
I'm good. I'm good. It's like, you know, finally getting warm out, feeling good.
Speaker #0
Yes, I know. I live in New England, but I'm not a winter person at all.
Speaker #1
Oh, see, I am a winter person in December. I love winter in December. She just has specific month. I want it to snow in December. I want Christmas to be white. I want it all to be glorious. And then I want January to roll around and it to not be cold and snowy anymore. But this is like the worst, this like lingering cold where you're like, just kind of just be 85 degrees and sunny. Thank you.
Speaker #0
Yeah, that'd be nice. Yeah, I would actually just love to just trade one more month of winter for summer. I'd be happy.
Speaker #1
But like summer, summer, like August summer or like June summer? Because that's not the same thing in New England.
Speaker #0
June summer.
Speaker #1
June summer. Yeah. August summer is the, it's like, I don't need it to be 95 with 95% humidity, then thunderstorm in the afternoon and ruin all your activities. Right.
Speaker #0
No, I agree with that. That's good. So, uh. Any fun kid parties you're going to? Because I feel like I'm getting swamped with kid parties lately.
Speaker #1
Okay. So you have two kids.
Speaker #0
Two.
Speaker #1
I have three kids. And so kid birthdays just get multiplied. The more kids you have, the more kid birthdays you have to attend. We could go to a kid birthday probably two days a weekend for the entire year between all my children. And kid birthdays are like, if they're your friends, it's cool because you go, you have your high noon in their kitchen, and the kids terrorize the house. You leave. It's fine. Or you're like commiserating at the bounce house place together. But when you're at like strangers kid birthdays, it's the worst.
Speaker #0
Oh, I'm all in the stranger kid birthdays because my kids are little. So it's all like the daycare ones. It's like, you know, I'm like meeting friends. Like, do I be cool? Is this a cool parent? Is this a nerdy parent? Like you're trying to like scope out the whole scene because you're like, probably going to live with these people for like 15 years, right? Moving forward.
Speaker #1
Well, and you have the awkward like, hey, you've got kids. I've got them too. We have something in common. And you're like, no, actually, we don't, Liza. No,
Speaker #0
I'm not really. They're like, oh, but our kids are both the same age. You have two. We have two. Nope. Nope.
Speaker #1
Nope. Well, and then you also learn that there are more indoor bounce house trampoline facilities in the state of Connecticut than you ever knew existed prior to having kids, right? You're like, there's one in every strip mall.
Speaker #0
Oh, yeah. Well, I think we went to one recently that was clearly like way too big, like way too adult for them because like it was a laser tag slash arcade and the arcade section was like. murdering zombies with guns.
Speaker #1
Awesome. Love it. Good for five-year-olds.
Speaker #0
Which is awesome for a five-year-old. Yeah. Yeah.
Speaker #1
Perfect. Perfect. And like murdering each other with lasers, also perfect. Yeah. Like this is great. We went to one at a bounce place, like a trampoline place, and it was cool for like an hour. And then an hour in, another party came and my kid was six. The other party, I think the average age was like 13. So these 13-year-olds were like bouncing these little kids off trampolines, beating them to death with like the sumo sticks. And yeah. I was like, I think we're going to go now.
Speaker #0
Yeah, they're probably, we're going to be so much fun. We're going to be fun for these kids. And the kids are just like, oh my God.
Speaker #1
Yeah, crying, crying. Speaking of crying, what are we talking about today?
Speaker #0
We are going to talk about house investing, house hacking, as the TikTokers say.
Speaker #1
The TikTokers say, yeah, house hacking in the real estate world is like a buzz term that we hear all of the time. So if you hear house hacking, what do you think it means?
Speaker #0
In my head, I think it means like, hey, I've got a roommate who's going to pay me some dough.
Speaker #1
All right. All right. And that is sort of the very basics of what house hacking is, right? It's you are going to own a property and someone else is going to help pay your mortgage. Okay. The trick with it is, is there's a lot of different ways to do that. It's not as simple as, oh, I have somebody paying me rent who lives in my unit. It could be that you could have a, we call that a border. Okay. So you own a property and you maybe rent a bedroom out, even if it's your friend, they're a border, they're paying you rent towards your mortgage. You could buy a multifamily. And a multifamily is a house that maybe is a duplex or a three-family or a four-family where it's an entire separate unit that they are renting. Two families, super popular in this area. There's a lot of those. You also could have a property called an ADU, which is a main house with a small colloquial known as in-law apartment or tinier unit attached to it, also becoming slightly popular. Or you could also just have another freestanding separate unit. So you could own a single family home and you could also own a condo. or own another single family home. And all of these are ways to generate income and help pay mortgages.
Speaker #0
Well, the other thing my buddy did that I thought was kind of house hacking light maybe is you move into a kind of a crappy house. It was a starter home. He fixed it up himself. He lived in it for three or four years, then he sold that as well. So that could be another avenue to look at. But I'm a little curious from the mortgage standpoint. So like, okay, I'm a 25-year-old. I got my buddy moving in with me. I got an extra room. Are they counting that? do I need like a professional lease? Or just say, hey, here's my Venmo. It has a little house emoji. So that means it's going to be rent.
Speaker #1
So it really depends. So the situation where somebody is a boarder, there are a few loan programs that allow for boarder income to be counted towards your monthly income on a mortgage. But generally, no, we're really qualifying you based on your income, your debt, your assets when you're buying that house. The benefit for you is just, you know, your mortgage is two grand a month. You know, your roommate's going to pay you a grand. these numbers make sense for you, right? The more common, when we hear house hacking, and there's a lot of videos all over the internet about it, people talking about if you want to create generational wealth, you got to house hack. Some of the advice in them is great. Some of it is highly illegal, okay? Highly illegal. So we're going to break that down a little bit. But the most common way to do it is to buy a multifamily house, all right? So why do they want to do that? Well, if you buy a multifamily house as an investment property, meaning you are not going to live in that house, you generally have to put a lot down, right? 25% is... the norm. And that can be very expensive. And so for a young adult who's maybe just starting out, hasn't bought a house yet, they may not have 25% down to put on these houses. So they want to do it as a primary residence, meaning they're going to live in one of the units and they're going to rent either the second unit or the second and third unit if it's a three-family out. And that's really the house. I'm making air quotes right here into the microphone. That's really the house hack that people are talking about. I'm going to buy this as a primary. I'm going to live in one. other people are going to pay my rent from these other units and I'm essentially going to live for free. That is actually a pretty smart move. What can I do for you? Well, let's just break down a little bit of math. So you're going to buy a duplex and say it's $400,000. And that sounds outrageous right now, right? You're like, well, as a first time home buyer buying a $400,000 duplex, they might be because we're going to be using income from these other units, right? To help offset their income and allow them to qualify for more mortgage. When they do that, what they're going to do, say their mortgage payment is $2,500 a month. Okay. And this is worth talking about a two unit here. They're charging $2,000 to the other unit to live in there. So that essentially makes it so their rental, because I'm, and I'm making air quotes again, their rental payment to themselves is only $500 because that's what they're missing out of their mortgage payment. Right. So wouldn't we all love to have $500 a month in rent right now?
Speaker #0
That'd be great.
Speaker #1
That'd be great. Now, what if... these units, you've got two units. What if they're each three bedrooms? So you've got three people living in the unit next door and they're paying two grand a month total. And you've got three people living in your unit. You are one of them. And the other two guys are both paying 500 bucks. Now your mortgage payment's covered and you're making an additional $500 a month. So you're not just living for free, but you're making money on this. Now, do we really want to do this in our forties? Probably not. But like in your 20s, when you're living with roommates anyway.
Speaker #0
I had roommates basically until my wife. Is my wife kind of a roommate?
Speaker #1
Well, yeah. Yeah. Until you got to that point.
Speaker #0
I basically had roommates my entire life, adult life. Yeah.
Speaker #1
And I think most of us, again, I think that's kind of the millennial jam. Most of us have. You have roommates in college and you kind of never really stop until you move out either, you know, when you get your big kid job with a spouse, a partner, you know, a more permanent situation. But that's really sort of the house hack. Now, where it gets a little bit crazy on the internet is they talk a lot about these primary residence mortgages. And, oh, you only have to live in it for 60 days. Oh, just say it's going to be a primary residence, but you don't actually have to live there. This is the part where it becomes illegal. That's called mortgage fraud. And we've talked about mortgage fraud in some episodes before where that's a big deal. Mortgage fraud is investigated by the FBI, not your local police. You do not want to mess around in that. So generally, when you're signing a mortgage note, you're... kind of asserting that you're going to live in that property for at least one year. Now, should you do it if you know you're going to move out in one calendar year exactly? You're like flirting on the edge at this point, but the government does know that like people's plans change. Maybe you bought it and your job moved or something like that, right? But if they notice a pattern of it where you buy, say, a duplex, you move in, you live in it for one calendar year exactly, 365 days later, you're closing on your next duplex, which is... also a primary residence. You live in that one for 365 days and you close on your next duplex. And that's what a lot of these house hacking videos are encouraging you to do, right? Like you're just going to go from one to the next one to the next one. That's where you get yourself in trouble.
Speaker #0
Well, I mean, come on. We're talking about the government here, Kel. So... How are they going to possibly catch you?
Speaker #1
Great question. They care, okay? So they will catch you from a couple of different ways. Number one, underwriters and loan officers are trained to look for this kind of fraud. So as you're applying for additional mortgages, we're going to go, huh, there's an interesting pattern here. And it's pretty easy for us to really look at intent. So that's one of the things that we look at in mortgages is what is your intention? are you going to occupy this property? Can we really prove you're going to occupy this property? And does the occupancy make sense? So for example, say you own a beautiful single family home in a nice suburban town that's worth a half a million dollars. Okay. We know you're, maybe you're married and you have three kids. We look at your income, everything looks great. And then you tell us you're going to buy a three family in a more urban area that only has two bedrooms in each unit. And you're going to tell me that that's going to be your primary residence. People do this all the time. they try to do this. And we go, huh, does this make sense?
Speaker #0
Or you kids have a job that we don't know about. They're paying rent for you. Yeah.
Speaker #1
Like, what are we doing here? Why your kids now don't have enough bedrooms. Your income has not changed since when you bought that original single family. So there's maybe not really is a reason to downsize. Oh, but by the way, I'm going to keep that single family. I'm going to rent that out, too. But I'm moving to this multifamily. This is all red flags for a mortgage loan officer and for an underwriter. So that's one way they catch you. But honestly, especially state bond programs like the Connecticut Housing and Finance Authority and other programs like that, they actually have people that it's their jobs to check up on occupancy. OK, they will send door knockers to knock on your door and say, hello, who are you? Can I see your driver's license? Do you occupy this home? What do you occupy this home with? Because they're looking to see if the person who signed the mortgage saying they're going to live in that house is in fact who's living in the house. They will also do things like contact. Say you've got municipal trash pickup. They will go online. A lot of this stuff is public record. And they'll say, huh, who is the trash pickup registered to? That is not the person who bought the house. They will look to see whose cars are registered to that house. They will look to see where is the mortgage statement being mailed? Is it being mailed to the address that you're supposed to be living at? Or, oh, that's weird. This address is at 123 Main Street. It's the primary. But it's this mortgage statement's being mailed a few blocks away to a different address. This is all red flags.
Speaker #0
And that's easily trackable.
Speaker #1
Easily trackable.
Speaker #0
Yeah. You could, all that's public. You can easily look that up and it's not like they will not like it to be too, too, uh, sure. Like homesy to, to get, get that done.
Speaker #1
Exactly. But if you're going to house hack in the truest sense of it, where you're going to use an opportunity like this to build wealth, it can be awesome. So I have a great story. I have a client, um, who about 10 years ago, he bought, he was a young guy in his early twenties. He bought his first duplex. So he is from Manchester, Connecticut. Uh, there's a lot of duplexes to be purchased there. So he bought it, uh, um, duplex in really rough shape. So he bought this duplex. It was in rough shape. He spent two years fixing it up. He lived in it while he was doing it. He actually wasn't even able to rent one of the units out for almost a year because he had to put in a new kitchen and a new bathroom. But he spent all this time fixing it up. And he bought it, this was 10 years ago, for about like $140,000. Okay. And he probably put 50 or 60,000 into this complex, into this multifamily. He lived in it. He lived in it for four years. At the end of four years, he called me and he's like, hey, there's a three unit down the street. The main floor is bigger than what I'm living in now. I'm going to buy that one and move into it. Now, we had no reason to not believe him. It was a bigger unit. It was down the street. He did have roommates. There was no family that we were talking about. Nothing like that. He had lived in there for a few years already. He had no history of flipping. And we went, cool. All right. That sounds good. He bought the three unit. He did the same thing. So now he's renting out his duplex. He's got two people. and they were actually, their two rents were paying more than the mortgage payment. He took equity out of that house. So this is one of the big tenants of house hacking. So he took a home equity line of credit out of the first house. That was the down payment for the second house. He renovated that house. He lived there for another two years. He lived in one unit, fixed the other ones up. And at the end of it, he said, all right, I've been here for a couple of years. And he went and bought a beautiful single family home. He ended up with a partner. They were going to get married, have kids. So he now owns five units, income producing units. The second unit he managed to refinance when rates were really, really low, had a very low mortgage payment. And he was renting each of the units out for $1,800 a month, the first unit he was renting out. So he was clearing triple the two mortgage payments put together in monthly income from these. So he was just paying these mortgages down as quick as possible. Well, now he has the income to actually buy investment properties. So now we're in a position where he actually owns 10 separate buildings. he now can put 25% down on them because he's making enough money from these. And he actually quit his full-time job. So his full-time job now is he's a property manager. He owns all of these units and he's moved out of all residential. He's got some commercial units now. He's got some six units, which are bigger than what a residential mortgage loan will allow. But this is like his business at this point. And he started as like a 23-year-old guy who was just kind of looking for somewhere to live.
Speaker #0
All right. Why don't we kind of peel back the onion on this a little bit? Because I think this is a great case study to look at. So- He's what, 22, 23 when he started? Yep. So what did he have to put down in the first set of house? Is it 3% down? Was it the 20% you were talking about?
Speaker #1
So he used an FHA mortgage, Federal Housing Administration home loan, and he needed to put 3.5% down.
Speaker #0
Okay. So not a huge lump sum of money. I mean, you got to put some money in to fix it up. So that's another thing to think about. So if you are looking, okay, do I put 3% down on a quote-unquote ready-made move-in property? Or do I have some extra cash on the side to help renovate it? Because that's obviously going to push the value up, but you got to put some work and some money into it.
Speaker #1
Yeah. A little sweat equity goes a long way. We also really recommend for somebody who, and I have a lot of conversations with my multifamily buyers about this, is what do you have left at the end of this transaction? Okay. If we're going to deplete every dollar that you have, right? Like I need $20,000 to close and you have $20,100 to close. If you're buying a single family home, that makes me nervous. If you're buying a multifamily home, that makes me extra nervous. Because what happens in a multifamily? Well, number one, you are responsible for... the upkeep and the maintenance of the other unit, even if you're not living in it. What does that mean? If the fridge dies, you're buying a new fridge. If the toilet gets clogged, you're paying the plumber. You are in charge of that unit. The landscaping is you. Generally, the plowing is you. Whatever needs to happen to that unit, you are in charge of. So you do need money in reserve because you're now responsible for two households.
Speaker #0
Right. And anything can go wrong and that tenant is not taking care of that house as much as you would probably think they or want them to be.
Speaker #1
Exactly. So that's number one. Number two, you can have vacancies, right? And sometimes it's not, especially here in Connecticut. I highly doubt you'd have a long vacancy, but what if you've got a tenant moving out in June and your next tenant isn't going to come in until September? You might need to float that payment for a couple of months. We want to make sure that you have the money to do that. We again, call that reserves. And then the other piece to it is... generally in between tenants, you are going to have to go in and do maintenance to that property. You might be replacing carpets, redoing hardwood floors, painting in order to get the unit ready for the next tenant. It is not the exiting tenant's job really to fix that. And you may have a deposit on the tenant that has left, but there's a lot of rules regarding deposits. So you can't just say like, ah, it's not in great shape. I'm going to keep your $2,000 deposit. You have to give them an itemized list, receipts, what kind to get fixed. you have to behold that money in escrow during the time that they they're living in your unit so there's a lot of rules associated with it so i generally tell people it's probably in their best interest to have at least three months of their mortgage payment saved in reserve that we do not need to live on before you really undertake being a multifamily homeowner yeah i mean that's i think that's great advice because anything can go wrong um tenants
Speaker #0
can move out on you at a moment's notice and you know this is i mean especially depending on what state you're in because tenant-friendly states exist.
Speaker #1
We don't live in one.
Speaker #0
Well, that's good. Well, my property is a mass that I have. So that's a very tenant-friendly state.
Speaker #1
I actually said it the other way around. We do not have a landlord-friendly state in Connecticut. We have a very tenant-friendly state in Connecticut. And that's the other thing is you could have, you know, a tenant that chooses to not pay you. Right. Right. So you could have somebody living there where you can't rent it out and you're not getting money, money from it. And that, right? Like, what are you going to do? the eviction process in Connecticut is long and expensive. And again, they're always going to err on the side of the tenant here. So you want to make sure that, again, you have reserves to make up for it. Now, what can you do to combat that, right? So how do you make sure you have a good tenant? A couple of things. Background checks are imperative. There's lots of online programs and online systems where you can do background checks. You want to do a background check. Some landlords require their tenants to give them a copy of their credit report. It's not the worst idea.
Speaker #0
I did. You did?
Speaker #1
Yeah. Because then you can see, do you have any prior evictions? Do you have any foreclosures? Do you have any bankruptcies? Is there anything huge? Now, I would tell you, if you were just a layman, you looking at a credit report probably isn't going to be the most helpful thing because people don't really know how to read credit reports. You probably want to work with a professional. Realtors can help with this if you're using a realtor to help rent out your unit, but you want to look at a credit report. Requiring some sort of security deposit, a lot of times it's first, last, and one month security is common. But also, can you find a tenant that you know? Is it a friend of a friend? Can somebody vouch for them? Is there somebody's daughter or somebody's son or something like that? That can all really, really help when we're talking about how to vet your tenants.
Speaker #0
We also ask for income verification too. So we want to make sure, okay, can they actually afford to live here? I mean, credit report is nice. It says, hey, we do pay our bills on time, which you definitely want. But if your rent is too much for them to afford, you might want to. Make sure you have a good idea of what's going on with that. I did want to double back on one thing you had there with the home equity line of credit, because I don't know if our listeners are going to know exactly what that means. So I don't know if you want to get into explainer or you want me to kind of explain my experience using the home equity line.
Speaker #1
Is that what you did? Yeah. Let's talk about it. If you're the real life study of it.
Speaker #0
All right. So we didn't exactly house hack. So I used to live in Boston. My wife and I bought a condo in South Boston. We lived in there for about four years and then we decided to move to Connecticut because the home prices were literally half the cost of the ones in Massachusetts.
Speaker #1
Which is wild for those of us in Connecticut.
Speaker #0
Yeah. Well, I mean, we had incredible time because we were really February 1st of 2020. So like I was going under asking on offers, which is like unheard of nowadays. We're like, yeah, how dare you? I'm going to listen advice from you. This is all timing. So what we did is because we wanted to keep the house is we were going to say, okay, well, let's take the equity that we built up because we put money down into the condo. So we had equity built up from the money we put in plus the price did appreciate a little bit while we were living there so we had a little bit of a buffer so a home equity lets you say okay you've got you owe let's say let's say the house is 500 000 and you owe 300 you have 200 000 that is essentially quote unquote yours right so they'll let you do up to 80 loan of value and so in our instance we took about 100 000 out use that it's an interest only loan for 10 years so if the cash flow is an issue it can be a really good cash flow thing because you're only paying interest That said, you're not paying down any of the principles. So you can still have that debt there hanging over your head. But that's where you really have to do the numbers and make sure it's worthwhile to bring the tenant in. Are you getting clearance from that? But that could be a good way to get equity out without having to do like a cash out refi, for example. The other thing to watch out with the home equity lines is it's a variable rate. Yeah. So what you start off with, the rate will go up as we've experienced.
Speaker #1
Yes. And that's where the timing wasn't great for you in that sense of you probably got that when the rate was very low and you're like, this looks great. And now we're here in some, I'm going to say historic high rates. They're not historic in reality, but for us millennials, we can call them historic because we've never seen them before. We have not. And rates that don't feel the same as they did when you got that home equity.
Speaker #0
But I will say our home equity payment doubled basically because the rates went up.
Speaker #1
Wow. Wow.
Speaker #0
The good news, we had enough buffer in the rent to handle it. But that's something you have to consider if you're going to go down that road, because it's not like, oh, cool, my payment's $400 a month, and it'll stay that way forever. It's like, uh, uh, uh.
Speaker #1
Not so much. Now, the same token, rents have also gone up, right? Correct. So there is some wiggle room. Now, have you had multiple tenants in your condo? Or have you had the same tenant?
Speaker #0
I have actually had the same tenant the entire time.
Speaker #1
Well, that's a bonus right there.
Speaker #0
Yeah, she's great. A little needy sometimes. She asked me to move an air conditioner to three floors down to the basement, which I was not going to do, which I let her borrow. said air conditioner.
Speaker #1
You're like,
Speaker #0
that is not on my lease. It's fine.
Speaker #1
Now let's talk about leases. So how did you write up a lease? Did you just go on the internet and download a lease?
Speaker #0
No, no, I did not. So I used a real estate agent that I trusted. And he helped me with the whole lease process. He actually helped me vet him. So if you're trying to do all this stuff on your own to save some money, at least the way in Boston works, the tenant actually pays the first month's fee. So it's a weird situation where the landlord actually doesn't pay the person to work for them. the person moving in does. So if you're in Massachusetts, like hire a real estate agent, because you do not pay for their services and they help you out. They don't help the tenant out. So yeah, they have an attorney that they put up the whole lease. They laid it out for us. They did the background check for us. They did all that stuff. So I would have paid the money for that because to me, it's the insurance you have is essentially you vetting the tenant right ahead. And you're using an expert that has like, that's my first time being a landlord. I had no idea like, I don't know where I would get these leases from.
Speaker #1
What needs to be in the lease?
Speaker #0
Yeah. What, yeah. What doesn't need to be in the lease? What are some things you can negotiate? Like any of that stuff you really want to make sure you have. Um, like my tenant was kind of asking about, Hey, like I don't have a dog, but if I got a dog, I'm like, Nope,
Speaker #1
Nope,
Speaker #0
Nope, No dog. So I was, it was like, I was adamant about that. Um, so there's definitely things you can add and have them add in the lease. So that's typically what I would did. So I didn't, I'm not an attorney, but I would at least hire an attorney if you don't want to have a realtor come in and help show the property. Uh, but to me they were worth it.
Speaker #1
All right. 100% agree with that. So in my line of business, we do see a lot of leases sometimes from landlords who are trying to buy another property. We end up getting all of their leases. And I have seen some spectacular leases and some absolutely terrible leases. Leases written on the back of restaurant napkins, like, you're going to pay me $1,000 a month. Thank you. A lease is protection. And think of it as insurance almost, where that lease is going to be if your tenant decides to stop paying and you have to evict them. everything needs to be spelled out in that lease.
Speaker #0
Like if you go to a court, are they going to laugh you out of the courtroom? Correct. Are they going to look at this and say, okay, this is legitimate. This is something that they're a breach of contract because this is contract we're talking about. Yep,
Speaker #1
yep. And exactly. So I would tell you having a good real estate attorney is imperative in this process. And that's something that as you're working with your loan officer to purchase the property and your realtor to purchase the property, like start having conversations. There are real estate attorneys that really only do purchase transactions, but there are real estate attorneys that also specialize in things like tenant law. who can set you up from the get-go to have these leases, to be prepared for evictions, to be prepared for all of that sort of stuff before it actually happens. Because it can get really dicey if you are not prepared. And it can get really dicey if you are, again, downloading things off the internet. You're like, there's a ton of websites out there where you can pay $25 and download a residential lease. But what state's that for? Who has vetted it? Yeah, because... again, different states, as Derek said, have very different tenant laws.
Speaker #0
Yeah. And I think the other thing for me is they actually laid out like what's expected of the landlord and what, what, like what's your response and what's not. So like me moving an air conditioner was not in the lease.
Speaker #1
Yeah. So you're like, no, you're on your own. Well, what's some other stuff to, to pay attention to? So I have a couple other, where can this go wrong? Okay. So number one, evictions. That's the number one place where multifamilies are owning other units go wrong. You have somebody who stopped paying. Now, sometimes people stop paying because they're jerks. Okay. Sometimes people stop paying for legitimate reasons. And now you're dealing with sort of the emotional aspect of it too, where, you know, you, maybe you have somebody who has an accident or an injury or an emergency and they can't afford to pay you. So you're like being nice and you're no longer following your lease and you're not charging them interest. And you're like, it's okay. Get it to me a little bit later. And that can actually open you up for, for legal proceeding. So if you don't follow your lease, that can get you in trouble. So you have to be really careful. Another thing, especially in multifamilies, if you are living in your multifamily, you are both the landlord. and the neighbor. So the blurring of your personal life and this business that you own can be really big, right? So, you know, it's one thing like your tenant lives in Boston. So for her to get to you, she's got to call you on the phone. She can't come bang on your door at two o'clock in the morning. And if you were living right next to your tenant, that can absolutely be the case. You could get the bang on your door and the doorbell ringing at 2 a.m. What if your tenant is crazy? What if they're really dramatic? What if they're really high needs and you are living next to this person? You can't just evict them because you don't like them. Right. Right. You could be stuck with a lousy neighbor because you pick poorly in your, in your tenant search.
Speaker #0
Well, I think you, you said that the, probably the, the key point here is this is your business. Once you start doing this, like you get a tax return and you pay taxes on this. Um, this is a business and you have to treat it like a business. So if you're living next to a quote unquote friend or anything like that, you've got to be real clear with all of this stuff. Uh, or even don't try and make friends with your, your tenant. I mean, it may be a cool person that may be great, but like.
Speaker #1
there's some liability that you can look out there and i don't know i would just i'm glad my tenant lives in a different state i'll just say that well and sometimes what people do especially when they're living on site is they will not tell the tenants that they are in fact the landlord they will use a third party property manager to manage things and they will just kind of pretend they're another tenant and that can sometimes ease the pain a little bit of living next to the person um because they may not even know you're the owner of the home right They may not even know. Something else to keep in mind are city and state rules and laws regarding owning a property. So things like some states and towns have a maximum number of occupants, right? So you can't necessarily just rent, like you've got a three bedroom, you can't have six people in it. You might only be able to have three people in it. You need to know that before you start renting these properties out. And sometimes again, in like house hacky world, we'll see some of those videos on. online where, yeah, you're going to put bunk beds in each room and you're going to stack these rooms and you're going to have 12 people living in the three bed. That might be very illegal in the state that you're living in or the town.
Speaker #0
Yeah. So don't stuff people in drawers.
Speaker #1
Don't stuff people in drawers. Also things like egress. Okay. So that's a big one. If you are renting a property out, you have to make sure that there's proper egress in case of an emergency or a fire. And you might be like, basements are a big place. This happens if you have a finished basement. Okay. I mean, there's rooms down there. You might be like, that's cool. Well, if they only have those little tiny windows at the top, that may not be proper emergency egress. And if an emergency ever happened, you could get cited. You could get fined. There's a lot of negative stuff that could happen. So you want to make sure, again, before you're renting these out, that you have proper egress. You know how many people are allowed to live there. You meet codes for things like fire suppression, fire alarms, CO alarms, all that sort of stuff. So you need to do your research. We can't tell you what that is because it is very city-town jurisdiction specific.
Speaker #0
Wow. Okay. So you talked about all the bad stuff. Is there anything good about house hacking?
Speaker #1
The big thing is, right, people are trying to afford houses in this market. And again, if you can get into a property, be paying yourself rent along with having other people pay you rent, it can really help build equity. Again, we hear that term generational wealth a lot in these house hacking videos. House hacking, if done correctly, can absolutely be a great investment and a great way to build generational wealth. I would just tell you that like... TikTok videos, Instagram reels, they may have some good tidbits in them, but you have to do your own research to the laws, the rules, the regulations of your area of your state. You have to know what you're allowed to do and not allowed to do. And you also just have to make sure that you really understand your own finances before you're taking on the responsibility of other people's finances. Because when you have tenants, again, you're dealing with your own financial situation, but you're also managing other people's as they have to pay you and pay you on time.
Speaker #0
Right. I mean, so that's where, if you don't know... Ask a professional. There's people that have been through this. Ask them. But to me, this could be a phenomenal way to build wealth because one of the ways I look at it is mortgages stay flat. Your mortgage payment is the same moving forward. The only thing that changes is your insurance and your taxes. Yep. but your rents can go up. Every year.
Speaker #1
Every year. And again, what I always tell people, say you rent an apartment for five years. At the end of five years, what do you do? You hand the keys back and you got nothing. Nothing. If you own the property, you sell it. And are you going to get 100% of your equity back that you've paid into it? Maybe not. Right now, yes, because the market's great. In regular markets, maybe not. But even if you got 50% of what you paid back, you are farther ahead than you are if you're renting. There's no doubt.
Speaker #0
And hopefully you're cash flowing because that should be the goal of you renting. So if you're losing money, five, 600 a month, it's probably not the best. Move on. I think that's one thing where don't force it when it comes to looking at property. Have some metrics for, okay, if I buy it for this, the mortgage is going to be this and the rents in the area are that. So if the mortgages are two grand all in with all the costs and your rents are 1,500, probably not the best investment. So think about that that way. You know, if you put in 50 or 60,000 and you can get, you know, five or 600 a month in cash flow, that's an awesome return on your cash. Awesome. Because there's a nice leverage piece to real estate that we're not like, you know, normally getting on other investment vehicles. And then there's also, I mean, I'm not an accountant, definitely talk to an accountant on it, but you have depreciation opportunities and rental properties are very tax efficient. The code is very helpful for those that want to invest in real estate. So if you're complaining about paying too much in taxes, I mean, you're not gonna be able to offset your income with it, but there's a lot of opportunity there for those that do want to, you know, learn about house hacking and how to do it.
Speaker #2
And if there is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes, the purchase of certain securities may be required to affect some of the strategies. Investing involves risks, including possible loss of principal. The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

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About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

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Transcription

Speaker #0
Welcome to another episode of Millennial Money Matters with Derek and Kelly. Kelly, how are you doing?
Speaker #1
I'm good. I'm good. It's like, you know, finally getting warm out, feeling good.
Speaker #0
Yes, I know. I live in New England, but I'm not a winter person at all.
Speaker #1
Oh, see, I am a winter person in December. I love winter in December. She just has specific month. I want it to snow in December. I want Christmas to be white. I want it all to be glorious. And then I want January to roll around and it to not be cold and snowy anymore. But this is like the worst, this like lingering cold where you're like, just kind of just be 85 degrees and sunny. Thank you.
Speaker #0
Yeah, that'd be nice. Yeah, I would actually just love to just trade one more month of winter for summer. I'd be happy.
Speaker #1
But like summer, summer, like August summer or like June summer? Because that's not the same thing in New England.
Speaker #0
June summer.
Speaker #1
June summer. Yeah. August summer is the, it's like, I don't need it to be 95 with 95% humidity, then thunderstorm in the afternoon and ruin all your activities. Right.
Speaker #0
No, I agree with that. That's good. So, uh. Any fun kid parties you're going to? Because I feel like I'm getting swamped with kid parties lately.
Speaker #1
Okay. So you have two kids.
Speaker #0
Two.
Speaker #1
I have three kids. And so kid birthdays just get multiplied. The more kids you have, the more kid birthdays you have to attend. We could go to a kid birthday probably two days a weekend for the entire year between all my children. And kid birthdays are like, if they're your friends, it's cool because you go, you have your high noon in their kitchen, and the kids terrorize the house. You leave. It's fine. Or you're like commiserating at the bounce house place together. But when you're at like strangers kid birthdays, it's the worst.
Speaker #0
Oh, I'm all in the stranger kid birthdays because my kids are little. So it's all like the daycare ones. It's like, you know, I'm like meeting friends. Like, do I be cool? Is this a cool parent? Is this a nerdy parent? Like you're trying to like scope out the whole scene because you're like, probably going to live with these people for like 15 years, right? Moving forward.
Speaker #1
Well, and you have the awkward like, hey, you've got kids. I've got them too. We have something in common. And you're like, no, actually, we don't, Liza. No,
Speaker #0
I'm not really. They're like, oh, but our kids are both the same age. You have two. We have two. Nope. Nope.
Speaker #1
Nope. Well, and then you also learn that there are more indoor bounce house trampoline facilities in the state of Connecticut than you ever knew existed prior to having kids, right? You're like, there's one in every strip mall.
Speaker #0
Oh, yeah. Well, I think we went to one recently that was clearly like way too big, like way too adult for them because like it was a laser tag slash arcade and the arcade section was like. murdering zombies with guns.
Speaker #1
Awesome. Love it. Good for five-year-olds.
Speaker #0
Which is awesome for a five-year-old. Yeah. Yeah.
Speaker #1
Perfect. Perfect. And like murdering each other with lasers, also perfect. Yeah. Like this is great. We went to one at a bounce place, like a trampoline place, and it was cool for like an hour. And then an hour in, another party came and my kid was six. The other party, I think the average age was like 13. So these 13-year-olds were like bouncing these little kids off trampolines, beating them to death with like the sumo sticks. And yeah. I was like, I think we're going to go now.
Speaker #0
Yeah, they're probably, we're going to be so much fun. We're going to be fun for these kids. And the kids are just like, oh my God.
Speaker #1
Yeah, crying, crying. Speaking of crying, what are we talking about today?
Speaker #0
We are going to talk about house investing, house hacking, as the TikTokers say.
Speaker #1
The TikTokers say, yeah, house hacking in the real estate world is like a buzz term that we hear all of the time. So if you hear house hacking, what do you think it means?
Speaker #0
In my head, I think it means like, hey, I've got a roommate who's going to pay me some dough.
Speaker #1
All right. All right. And that is sort of the very basics of what house hacking is, right? It's you are going to own a property and someone else is going to help pay your mortgage. Okay. The trick with it is, is there's a lot of different ways to do that. It's not as simple as, oh, I have somebody paying me rent who lives in my unit. It could be that you could have a, we call that a border. Okay. So you own a property and you maybe rent a bedroom out, even if it's your friend, they're a border, they're paying you rent towards your mortgage. You could buy a multifamily. And a multifamily is a house that maybe is a duplex or a three-family or a four-family where it's an entire separate unit that they are renting. Two families, super popular in this area. There's a lot of those. You also could have a property called an ADU, which is a main house with a small colloquial known as in-law apartment or tinier unit attached to it, also becoming slightly popular. Or you could also just have another freestanding separate unit. So you could own a single family home and you could also own a condo. or own another single family home. And all of these are ways to generate income and help pay mortgages.
Speaker #0
Well, the other thing my buddy did that I thought was kind of house hacking light maybe is you move into a kind of a crappy house. It was a starter home. He fixed it up himself. He lived in it for three or four years, then he sold that as well. So that could be another avenue to look at. But I'm a little curious from the mortgage standpoint. So like, okay, I'm a 25-year-old. I got my buddy moving in with me. I got an extra room. Are they counting that? do I need like a professional lease? Or just say, hey, here's my Venmo. It has a little house emoji. So that means it's going to be rent.
Speaker #1
So it really depends. So the situation where somebody is a boarder, there are a few loan programs that allow for boarder income to be counted towards your monthly income on a mortgage. But generally, no, we're really qualifying you based on your income, your debt, your assets when you're buying that house. The benefit for you is just, you know, your mortgage is two grand a month. You know, your roommate's going to pay you a grand. these numbers make sense for you, right? The more common, when we hear house hacking, and there's a lot of videos all over the internet about it, people talking about if you want to create generational wealth, you got to house hack. Some of the advice in them is great. Some of it is highly illegal, okay? Highly illegal. So we're going to break that down a little bit. But the most common way to do it is to buy a multifamily house, all right? So why do they want to do that? Well, if you buy a multifamily house as an investment property, meaning you are not going to live in that house, you generally have to put a lot down, right? 25% is... the norm. And that can be very expensive. And so for a young adult who's maybe just starting out, hasn't bought a house yet, they may not have 25% down to put on these houses. So they want to do it as a primary residence, meaning they're going to live in one of the units and they're going to rent either the second unit or the second and third unit if it's a three-family out. And that's really the house. I'm making air quotes right here into the microphone. That's really the house hack that people are talking about. I'm going to buy this as a primary. I'm going to live in one. other people are going to pay my rent from these other units and I'm essentially going to live for free. That is actually a pretty smart move. What can I do for you? Well, let's just break down a little bit of math. So you're going to buy a duplex and say it's $400,000. And that sounds outrageous right now, right? You're like, well, as a first time home buyer buying a $400,000 duplex, they might be because we're going to be using income from these other units, right? To help offset their income and allow them to qualify for more mortgage. When they do that, what they're going to do, say their mortgage payment is $2,500 a month. Okay. And this is worth talking about a two unit here. They're charging $2,000 to the other unit to live in there. So that essentially makes it so their rental, because I'm, and I'm making air quotes again, their rental payment to themselves is only $500 because that's what they're missing out of their mortgage payment. Right. So wouldn't we all love to have $500 a month in rent right now?
Speaker #0
That'd be great.
Speaker #1
That'd be great. Now, what if... these units, you've got two units. What if they're each three bedrooms? So you've got three people living in the unit next door and they're paying two grand a month total. And you've got three people living in your unit. You are one of them. And the other two guys are both paying 500 bucks. Now your mortgage payment's covered and you're making an additional $500 a month. So you're not just living for free, but you're making money on this. Now, do we really want to do this in our forties? Probably not. But like in your 20s, when you're living with roommates anyway.
Speaker #0
I had roommates basically until my wife. Is my wife kind of a roommate?
Speaker #1
Well, yeah. Yeah. Until you got to that point.
Speaker #0
I basically had roommates my entire life, adult life. Yeah.
Speaker #1
And I think most of us, again, I think that's kind of the millennial jam. Most of us have. You have roommates in college and you kind of never really stop until you move out either, you know, when you get your big kid job with a spouse, a partner, you know, a more permanent situation. But that's really sort of the house hack. Now, where it gets a little bit crazy on the internet is they talk a lot about these primary residence mortgages. And, oh, you only have to live in it for 60 days. Oh, just say it's going to be a primary residence, but you don't actually have to live there. This is the part where it becomes illegal. That's called mortgage fraud. And we've talked about mortgage fraud in some episodes before where that's a big deal. Mortgage fraud is investigated by the FBI, not your local police. You do not want to mess around in that. So generally, when you're signing a mortgage note, you're... kind of asserting that you're going to live in that property for at least one year. Now, should you do it if you know you're going to move out in one calendar year exactly? You're like flirting on the edge at this point, but the government does know that like people's plans change. Maybe you bought it and your job moved or something like that, right? But if they notice a pattern of it where you buy, say, a duplex, you move in, you live in it for one calendar year exactly, 365 days later, you're closing on your next duplex, which is... also a primary residence. You live in that one for 365 days and you close on your next duplex. And that's what a lot of these house hacking videos are encouraging you to do, right? Like you're just going to go from one to the next one to the next one. That's where you get yourself in trouble.
Speaker #0
Well, I mean, come on. We're talking about the government here, Kel. So... How are they going to possibly catch you?
Speaker #1
Great question. They care, okay? So they will catch you from a couple of different ways. Number one, underwriters and loan officers are trained to look for this kind of fraud. So as you're applying for additional mortgages, we're going to go, huh, there's an interesting pattern here. And it's pretty easy for us to really look at intent. So that's one of the things that we look at in mortgages is what is your intention? are you going to occupy this property? Can we really prove you're going to occupy this property? And does the occupancy make sense? So for example, say you own a beautiful single family home in a nice suburban town that's worth a half a million dollars. Okay. We know you're, maybe you're married and you have three kids. We look at your income, everything looks great. And then you tell us you're going to buy a three family in a more urban area that only has two bedrooms in each unit. And you're going to tell me that that's going to be your primary residence. People do this all the time. they try to do this. And we go, huh, does this make sense?
Speaker #0
Or you kids have a job that we don't know about. They're paying rent for you. Yeah.
Speaker #1
Like, what are we doing here? Why your kids now don't have enough bedrooms. Your income has not changed since when you bought that original single family. So there's maybe not really is a reason to downsize. Oh, but by the way, I'm going to keep that single family. I'm going to rent that out, too. But I'm moving to this multifamily. This is all red flags for a mortgage loan officer and for an underwriter. So that's one way they catch you. But honestly, especially state bond programs like the Connecticut Housing and Finance Authority and other programs like that, they actually have people that it's their jobs to check up on occupancy. OK, they will send door knockers to knock on your door and say, hello, who are you? Can I see your driver's license? Do you occupy this home? What do you occupy this home with? Because they're looking to see if the person who signed the mortgage saying they're going to live in that house is in fact who's living in the house. They will also do things like contact. Say you've got municipal trash pickup. They will go online. A lot of this stuff is public record. And they'll say, huh, who is the trash pickup registered to? That is not the person who bought the house. They will look to see whose cars are registered to that house. They will look to see where is the mortgage statement being mailed? Is it being mailed to the address that you're supposed to be living at? Or, oh, that's weird. This address is at 123 Main Street. It's the primary. But it's this mortgage statement's being mailed a few blocks away to a different address. This is all red flags.
Speaker #0
And that's easily trackable.
Speaker #1
Easily trackable.
Speaker #0
Yeah. You could, all that's public. You can easily look that up and it's not like they will not like it to be too, too, uh, sure. Like homesy to, to get, get that done.
Speaker #1
Exactly. But if you're going to house hack in the truest sense of it, where you're going to use an opportunity like this to build wealth, it can be awesome. So I have a great story. I have a client, um, who about 10 years ago, he bought, he was a young guy in his early twenties. He bought his first duplex. So he is from Manchester, Connecticut. Uh, there's a lot of duplexes to be purchased there. So he bought it, uh, um, duplex in really rough shape. So he bought this duplex. It was in rough shape. He spent two years fixing it up. He lived in it while he was doing it. He actually wasn't even able to rent one of the units out for almost a year because he had to put in a new kitchen and a new bathroom. But he spent all this time fixing it up. And he bought it, this was 10 years ago, for about like $140,000. Okay. And he probably put 50 or 60,000 into this complex, into this multifamily. He lived in it. He lived in it for four years. At the end of four years, he called me and he's like, hey, there's a three unit down the street. The main floor is bigger than what I'm living in now. I'm going to buy that one and move into it. Now, we had no reason to not believe him. It was a bigger unit. It was down the street. He did have roommates. There was no family that we were talking about. Nothing like that. He had lived in there for a few years already. He had no history of flipping. And we went, cool. All right. That sounds good. He bought the three unit. He did the same thing. So now he's renting out his duplex. He's got two people. and they were actually, their two rents were paying more than the mortgage payment. He took equity out of that house. So this is one of the big tenants of house hacking. So he took a home equity line of credit out of the first house. That was the down payment for the second house. He renovated that house. He lived there for another two years. He lived in one unit, fixed the other ones up. And at the end of it, he said, all right, I've been here for a couple of years. And he went and bought a beautiful single family home. He ended up with a partner. They were going to get married, have kids. So he now owns five units, income producing units. The second unit he managed to refinance when rates were really, really low, had a very low mortgage payment. And he was renting each of the units out for $1,800 a month, the first unit he was renting out. So he was clearing triple the two mortgage payments put together in monthly income from these. So he was just paying these mortgages down as quick as possible. Well, now he has the income to actually buy investment properties. So now we're in a position where he actually owns 10 separate buildings. he now can put 25% down on them because he's making enough money from these. And he actually quit his full-time job. So his full-time job now is he's a property manager. He owns all of these units and he's moved out of all residential. He's got some commercial units now. He's got some six units, which are bigger than what a residential mortgage loan will allow. But this is like his business at this point. And he started as like a 23-year-old guy who was just kind of looking for somewhere to live.
Speaker #0
All right. Why don't we kind of peel back the onion on this a little bit? Because I think this is a great case study to look at. So- He's what, 22, 23 when he started? Yep. So what did he have to put down in the first set of house? Is it 3% down? Was it the 20% you were talking about?
Speaker #1
So he used an FHA mortgage, Federal Housing Administration home loan, and he needed to put 3.5% down.
Speaker #0
Okay. So not a huge lump sum of money. I mean, you got to put some money in to fix it up. So that's another thing to think about. So if you are looking, okay, do I put 3% down on a quote-unquote ready-made move-in property? Or do I have some extra cash on the side to help renovate it? Because that's obviously going to push the value up, but you got to put some work and some money into it.
Speaker #1
Yeah. A little sweat equity goes a long way. We also really recommend for somebody who, and I have a lot of conversations with my multifamily buyers about this, is what do you have left at the end of this transaction? Okay. If we're going to deplete every dollar that you have, right? Like I need $20,000 to close and you have $20,100 to close. If you're buying a single family home, that makes me nervous. If you're buying a multifamily home, that makes me extra nervous. Because what happens in a multifamily? Well, number one, you are responsible for... the upkeep and the maintenance of the other unit, even if you're not living in it. What does that mean? If the fridge dies, you're buying a new fridge. If the toilet gets clogged, you're paying the plumber. You are in charge of that unit. The landscaping is you. Generally, the plowing is you. Whatever needs to happen to that unit, you are in charge of. So you do need money in reserve because you're now responsible for two households.
Speaker #0
Right. And anything can go wrong and that tenant is not taking care of that house as much as you would probably think they or want them to be.
Speaker #1
Exactly. So that's number one. Number two, you can have vacancies, right? And sometimes it's not, especially here in Connecticut. I highly doubt you'd have a long vacancy, but what if you've got a tenant moving out in June and your next tenant isn't going to come in until September? You might need to float that payment for a couple of months. We want to make sure that you have the money to do that. We again, call that reserves. And then the other piece to it is... generally in between tenants, you are going to have to go in and do maintenance to that property. You might be replacing carpets, redoing hardwood floors, painting in order to get the unit ready for the next tenant. It is not the exiting tenant's job really to fix that. And you may have a deposit on the tenant that has left, but there's a lot of rules regarding deposits. So you can't just say like, ah, it's not in great shape. I'm going to keep your $2,000 deposit. You have to give them an itemized list, receipts, what kind to get fixed. you have to behold that money in escrow during the time that they they're living in your unit so there's a lot of rules associated with it so i generally tell people it's probably in their best interest to have at least three months of their mortgage payment saved in reserve that we do not need to live on before you really undertake being a multifamily homeowner yeah i mean that's i think that's great advice because anything can go wrong um tenants
Speaker #0
can move out on you at a moment's notice and you know this is i mean especially depending on what state you're in because tenant-friendly states exist.
Speaker #1
We don't live in one.
Speaker #0
Well, that's good. Well, my property is a mass that I have. So that's a very tenant-friendly state.
Speaker #1
I actually said it the other way around. We do not have a landlord-friendly state in Connecticut. We have a very tenant-friendly state in Connecticut. And that's the other thing is you could have, you know, a tenant that chooses to not pay you. Right. Right. So you could have somebody living there where you can't rent it out and you're not getting money, money from it. And that, right? Like, what are you going to do? the eviction process in Connecticut is long and expensive. And again, they're always going to err on the side of the tenant here. So you want to make sure that, again, you have reserves to make up for it. Now, what can you do to combat that, right? So how do you make sure you have a good tenant? A couple of things. Background checks are imperative. There's lots of online programs and online systems where you can do background checks. You want to do a background check. Some landlords require their tenants to give them a copy of their credit report. It's not the worst idea.
Speaker #0
I did. You did?
Speaker #1
Yeah. Because then you can see, do you have any prior evictions? Do you have any foreclosures? Do you have any bankruptcies? Is there anything huge? Now, I would tell you, if you were just a layman, you looking at a credit report probably isn't going to be the most helpful thing because people don't really know how to read credit reports. You probably want to work with a professional. Realtors can help with this if you're using a realtor to help rent out your unit, but you want to look at a credit report. Requiring some sort of security deposit, a lot of times it's first, last, and one month security is common. But also, can you find a tenant that you know? Is it a friend of a friend? Can somebody vouch for them? Is there somebody's daughter or somebody's son or something like that? That can all really, really help when we're talking about how to vet your tenants.
Speaker #0
We also ask for income verification too. So we want to make sure, okay, can they actually afford to live here? I mean, credit report is nice. It says, hey, we do pay our bills on time, which you definitely want. But if your rent is too much for them to afford, you might want to. Make sure you have a good idea of what's going on with that. I did want to double back on one thing you had there with the home equity line of credit, because I don't know if our listeners are going to know exactly what that means. So I don't know if you want to get into explainer or you want me to kind of explain my experience using the home equity line.
Speaker #1
Is that what you did? Yeah. Let's talk about it. If you're the real life study of it.
Speaker #0
All right. So we didn't exactly house hack. So I used to live in Boston. My wife and I bought a condo in South Boston. We lived in there for about four years and then we decided to move to Connecticut because the home prices were literally half the cost of the ones in Massachusetts.
Speaker #1
Which is wild for those of us in Connecticut.
Speaker #0
Yeah. Well, I mean, we had incredible time because we were really February 1st of 2020. So like I was going under asking on offers, which is like unheard of nowadays. We're like, yeah, how dare you? I'm going to listen advice from you. This is all timing. So what we did is because we wanted to keep the house is we were going to say, okay, well, let's take the equity that we built up because we put money down into the condo. So we had equity built up from the money we put in plus the price did appreciate a little bit while we were living there so we had a little bit of a buffer so a home equity lets you say okay you've got you owe let's say let's say the house is 500 000 and you owe 300 you have 200 000 that is essentially quote unquote yours right so they'll let you do up to 80 loan of value and so in our instance we took about 100 000 out use that it's an interest only loan for 10 years so if the cash flow is an issue it can be a really good cash flow thing because you're only paying interest That said, you're not paying down any of the principles. So you can still have that debt there hanging over your head. But that's where you really have to do the numbers and make sure it's worthwhile to bring the tenant in. Are you getting clearance from that? But that could be a good way to get equity out without having to do like a cash out refi, for example. The other thing to watch out with the home equity lines is it's a variable rate. Yeah. So what you start off with, the rate will go up as we've experienced.
Speaker #1
Yes. And that's where the timing wasn't great for you in that sense of you probably got that when the rate was very low and you're like, this looks great. And now we're here in some, I'm going to say historic high rates. They're not historic in reality, but for us millennials, we can call them historic because we've never seen them before. We have not. And rates that don't feel the same as they did when you got that home equity.
Speaker #0
But I will say our home equity payment doubled basically because the rates went up.
Speaker #1
Wow. Wow.
Speaker #0
The good news, we had enough buffer in the rent to handle it. But that's something you have to consider if you're going to go down that road, because it's not like, oh, cool, my payment's $400 a month, and it'll stay that way forever. It's like, uh, uh, uh.
Speaker #1
Not so much. Now, the same token, rents have also gone up, right? Correct. So there is some wiggle room. Now, have you had multiple tenants in your condo? Or have you had the same tenant?
Speaker #0
I have actually had the same tenant the entire time.
Speaker #1
Well, that's a bonus right there.
Speaker #0
Yeah, she's great. A little needy sometimes. She asked me to move an air conditioner to three floors down to the basement, which I was not going to do, which I let her borrow. said air conditioner.
Speaker #1
You're like,
Speaker #0
that is not on my lease. It's fine.
Speaker #1
Now let's talk about leases. So how did you write up a lease? Did you just go on the internet and download a lease?
Speaker #0
No, no, I did not. So I used a real estate agent that I trusted. And he helped me with the whole lease process. He actually helped me vet him. So if you're trying to do all this stuff on your own to save some money, at least the way in Boston works, the tenant actually pays the first month's fee. So it's a weird situation where the landlord actually doesn't pay the person to work for them. the person moving in does. So if you're in Massachusetts, like hire a real estate agent, because you do not pay for their services and they help you out. They don't help the tenant out. So yeah, they have an attorney that they put up the whole lease. They laid it out for us. They did the background check for us. They did all that stuff. So I would have paid the money for that because to me, it's the insurance you have is essentially you vetting the tenant right ahead. And you're using an expert that has like, that's my first time being a landlord. I had no idea like, I don't know where I would get these leases from.
Speaker #1
What needs to be in the lease?
Speaker #0
Yeah. What, yeah. What doesn't need to be in the lease? What are some things you can negotiate? Like any of that stuff you really want to make sure you have. Um, like my tenant was kind of asking about, Hey, like I don't have a dog, but if I got a dog, I'm like, Nope,
Speaker #1
Nope,
Speaker #0
Nope, No dog. So I was, it was like, I was adamant about that. Um, so there's definitely things you can add and have them add in the lease. So that's typically what I would did. So I didn't, I'm not an attorney, but I would at least hire an attorney if you don't want to have a realtor come in and help show the property. Uh, but to me they were worth it.
Speaker #1
All right. 100% agree with that. So in my line of business, we do see a lot of leases sometimes from landlords who are trying to buy another property. We end up getting all of their leases. And I have seen some spectacular leases and some absolutely terrible leases. Leases written on the back of restaurant napkins, like, you're going to pay me $1,000 a month. Thank you. A lease is protection. And think of it as insurance almost, where that lease is going to be if your tenant decides to stop paying and you have to evict them. everything needs to be spelled out in that lease.
Speaker #0
Like if you go to a court, are they going to laugh you out of the courtroom? Correct. Are they going to look at this and say, okay, this is legitimate. This is something that they're a breach of contract because this is contract we're talking about. Yep,
Speaker #1
yep. And exactly. So I would tell you having a good real estate attorney is imperative in this process. And that's something that as you're working with your loan officer to purchase the property and your realtor to purchase the property, like start having conversations. There are real estate attorneys that really only do purchase transactions, but there are real estate attorneys that also specialize in things like tenant law. who can set you up from the get-go to have these leases, to be prepared for evictions, to be prepared for all of that sort of stuff before it actually happens. Because it can get really dicey if you are not prepared. And it can get really dicey if you are, again, downloading things off the internet. You're like, there's a ton of websites out there where you can pay $25 and download a residential lease. But what state's that for? Who has vetted it? Yeah, because... again, different states, as Derek said, have very different tenant laws.
Speaker #0
Yeah. And I think the other thing for me is they actually laid out like what's expected of the landlord and what, what, like what's your response and what's not. So like me moving an air conditioner was not in the lease.
Speaker #1
Yeah. So you're like, no, you're on your own. Well, what's some other stuff to, to pay attention to? So I have a couple other, where can this go wrong? Okay. So number one, evictions. That's the number one place where multifamilies are owning other units go wrong. You have somebody who stopped paying. Now, sometimes people stop paying because they're jerks. Okay. Sometimes people stop paying for legitimate reasons. And now you're dealing with sort of the emotional aspect of it too, where, you know, you, maybe you have somebody who has an accident or an injury or an emergency and they can't afford to pay you. So you're like being nice and you're no longer following your lease and you're not charging them interest. And you're like, it's okay. Get it to me a little bit later. And that can actually open you up for, for legal proceeding. So if you don't follow your lease, that can get you in trouble. So you have to be really careful. Another thing, especially in multifamilies, if you are living in your multifamily, you are both the landlord. and the neighbor. So the blurring of your personal life and this business that you own can be really big, right? So, you know, it's one thing like your tenant lives in Boston. So for her to get to you, she's got to call you on the phone. She can't come bang on your door at two o'clock in the morning. And if you were living right next to your tenant, that can absolutely be the case. You could get the bang on your door and the doorbell ringing at 2 a.m. What if your tenant is crazy? What if they're really dramatic? What if they're really high needs and you are living next to this person? You can't just evict them because you don't like them. Right. Right. You could be stuck with a lousy neighbor because you pick poorly in your, in your tenant search.
Speaker #0
Well, I think you, you said that the, probably the, the key point here is this is your business. Once you start doing this, like you get a tax return and you pay taxes on this. Um, this is a business and you have to treat it like a business. So if you're living next to a quote unquote friend or anything like that, you've got to be real clear with all of this stuff. Uh, or even don't try and make friends with your, your tenant. I mean, it may be a cool person that may be great, but like.
Speaker #1
there's some liability that you can look out there and i don't know i would just i'm glad my tenant lives in a different state i'll just say that well and sometimes what people do especially when they're living on site is they will not tell the tenants that they are in fact the landlord they will use a third party property manager to manage things and they will just kind of pretend they're another tenant and that can sometimes ease the pain a little bit of living next to the person um because they may not even know you're the owner of the home right They may not even know. Something else to keep in mind are city and state rules and laws regarding owning a property. So things like some states and towns have a maximum number of occupants, right? So you can't necessarily just rent, like you've got a three bedroom, you can't have six people in it. You might only be able to have three people in it. You need to know that before you start renting these properties out. And sometimes again, in like house hacky world, we'll see some of those videos on. online where, yeah, you're going to put bunk beds in each room and you're going to stack these rooms and you're going to have 12 people living in the three bed. That might be very illegal in the state that you're living in or the town.
Speaker #0
Yeah. So don't stuff people in drawers.
Speaker #1
Don't stuff people in drawers. Also things like egress. Okay. So that's a big one. If you are renting a property out, you have to make sure that there's proper egress in case of an emergency or a fire. And you might be like, basements are a big place. This happens if you have a finished basement. Okay. I mean, there's rooms down there. You might be like, that's cool. Well, if they only have those little tiny windows at the top, that may not be proper emergency egress. And if an emergency ever happened, you could get cited. You could get fined. There's a lot of negative stuff that could happen. So you want to make sure, again, before you're renting these out, that you have proper egress. You know how many people are allowed to live there. You meet codes for things like fire suppression, fire alarms, CO alarms, all that sort of stuff. So you need to do your research. We can't tell you what that is because it is very city-town jurisdiction specific.
Speaker #0
Wow. Okay. So you talked about all the bad stuff. Is there anything good about house hacking?
Speaker #1
The big thing is, right, people are trying to afford houses in this market. And again, if you can get into a property, be paying yourself rent along with having other people pay you rent, it can really help build equity. Again, we hear that term generational wealth a lot in these house hacking videos. House hacking, if done correctly, can absolutely be a great investment and a great way to build generational wealth. I would just tell you that like... TikTok videos, Instagram reels, they may have some good tidbits in them, but you have to do your own research to the laws, the rules, the regulations of your area of your state. You have to know what you're allowed to do and not allowed to do. And you also just have to make sure that you really understand your own finances before you're taking on the responsibility of other people's finances. Because when you have tenants, again, you're dealing with your own financial situation, but you're also managing other people's as they have to pay you and pay you on time.
Speaker #0
Right. I mean, so that's where, if you don't know... Ask a professional. There's people that have been through this. Ask them. But to me, this could be a phenomenal way to build wealth because one of the ways I look at it is mortgages stay flat. Your mortgage payment is the same moving forward. The only thing that changes is your insurance and your taxes. Yep. but your rents can go up. Every year.
Speaker #1
Every year. And again, what I always tell people, say you rent an apartment for five years. At the end of five years, what do you do? You hand the keys back and you got nothing. Nothing. If you own the property, you sell it. And are you going to get 100% of your equity back that you've paid into it? Maybe not. Right now, yes, because the market's great. In regular markets, maybe not. But even if you got 50% of what you paid back, you are farther ahead than you are if you're renting. There's no doubt.
Speaker #0
And hopefully you're cash flowing because that should be the goal of you renting. So if you're losing money, five, 600 a month, it's probably not the best. Move on. I think that's one thing where don't force it when it comes to looking at property. Have some metrics for, okay, if I buy it for this, the mortgage is going to be this and the rents in the area are that. So if the mortgages are two grand all in with all the costs and your rents are 1,500, probably not the best investment. So think about that that way. You know, if you put in 50 or 60,000 and you can get, you know, five or 600 a month in cash flow, that's an awesome return on your cash. Awesome. Because there's a nice leverage piece to real estate that we're not like, you know, normally getting on other investment vehicles. And then there's also, I mean, I'm not an accountant, definitely talk to an accountant on it, but you have depreciation opportunities and rental properties are very tax efficient. The code is very helpful for those that want to invest in real estate. So if you're complaining about paying too much in taxes, I mean, you're not gonna be able to offset your income with it, but there's a lot of opportunity there for those that do want to, you know, learn about house hacking and how to do it.
Speaker #2
And if there is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes, the purchase of certain securities may be required to affect some of the strategies. Investing involves risks, including possible loss of principal. The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Description

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Transcription

Speaker #0
Welcome to another episode of Millennial Money Matters with Derek and Kelly. Kelly, how are you doing?
Speaker #1
I'm good. I'm good. It's like, you know, finally getting warm out, feeling good.
Speaker #0
Yes, I know. I live in New England, but I'm not a winter person at all.
Speaker #1
Oh, see, I am a winter person in December. I love winter in December. She just has specific month. I want it to snow in December. I want Christmas to be white. I want it all to be glorious. And then I want January to roll around and it to not be cold and snowy anymore. But this is like the worst, this like lingering cold where you're like, just kind of just be 85 degrees and sunny. Thank you.
Speaker #0
Yeah, that'd be nice. Yeah, I would actually just love to just trade one more month of winter for summer. I'd be happy.
Speaker #1
But like summer, summer, like August summer or like June summer? Because that's not the same thing in New England.
Speaker #0
June summer.
Speaker #1
June summer. Yeah. August summer is the, it's like, I don't need it to be 95 with 95% humidity, then thunderstorm in the afternoon and ruin all your activities. Right.
Speaker #0
No, I agree with that. That's good. So, uh. Any fun kid parties you're going to? Because I feel like I'm getting swamped with kid parties lately.
Speaker #1
Okay. So you have two kids.
Speaker #0
Two.
Speaker #1
I have three kids. And so kid birthdays just get multiplied. The more kids you have, the more kid birthdays you have to attend. We could go to a kid birthday probably two days a weekend for the entire year between all my children. And kid birthdays are like, if they're your friends, it's cool because you go, you have your high noon in their kitchen, and the kids terrorize the house. You leave. It's fine. Or you're like commiserating at the bounce house place together. But when you're at like strangers kid birthdays, it's the worst.
Speaker #0
Oh, I'm all in the stranger kid birthdays because my kids are little. So it's all like the daycare ones. It's like, you know, I'm like meeting friends. Like, do I be cool? Is this a cool parent? Is this a nerdy parent? Like you're trying to like scope out the whole scene because you're like, probably going to live with these people for like 15 years, right? Moving forward.
Speaker #1
Well, and you have the awkward like, hey, you've got kids. I've got them too. We have something in common. And you're like, no, actually, we don't, Liza. No,
Speaker #0
I'm not really. They're like, oh, but our kids are both the same age. You have two. We have two. Nope. Nope.
Speaker #1
Nope. Well, and then you also learn that there are more indoor bounce house trampoline facilities in the state of Connecticut than you ever knew existed prior to having kids, right? You're like, there's one in every strip mall.
Speaker #0
Oh, yeah. Well, I think we went to one recently that was clearly like way too big, like way too adult for them because like it was a laser tag slash arcade and the arcade section was like. murdering zombies with guns.
Speaker #1
Awesome. Love it. Good for five-year-olds.
Speaker #0
Which is awesome for a five-year-old. Yeah. Yeah.
Speaker #1
Perfect. Perfect. And like murdering each other with lasers, also perfect. Yeah. Like this is great. We went to one at a bounce place, like a trampoline place, and it was cool for like an hour. And then an hour in, another party came and my kid was six. The other party, I think the average age was like 13. So these 13-year-olds were like bouncing these little kids off trampolines, beating them to death with like the sumo sticks. And yeah. I was like, I think we're going to go now.
Speaker #0
Yeah, they're probably, we're going to be so much fun. We're going to be fun for these kids. And the kids are just like, oh my God.
Speaker #1
Yeah, crying, crying. Speaking of crying, what are we talking about today?
Speaker #0
We are going to talk about house investing, house hacking, as the TikTokers say.
Speaker #1
The TikTokers say, yeah, house hacking in the real estate world is like a buzz term that we hear all of the time. So if you hear house hacking, what do you think it means?
Speaker #0
In my head, I think it means like, hey, I've got a roommate who's going to pay me some dough.
Speaker #1
All right. All right. And that is sort of the very basics of what house hacking is, right? It's you are going to own a property and someone else is going to help pay your mortgage. Okay. The trick with it is, is there's a lot of different ways to do that. It's not as simple as, oh, I have somebody paying me rent who lives in my unit. It could be that you could have a, we call that a border. Okay. So you own a property and you maybe rent a bedroom out, even if it's your friend, they're a border, they're paying you rent towards your mortgage. You could buy a multifamily. And a multifamily is a house that maybe is a duplex or a three-family or a four-family where it's an entire separate unit that they are renting. Two families, super popular in this area. There's a lot of those. You also could have a property called an ADU, which is a main house with a small colloquial known as in-law apartment or tinier unit attached to it, also becoming slightly popular. Or you could also just have another freestanding separate unit. So you could own a single family home and you could also own a condo. or own another single family home. And all of these are ways to generate income and help pay mortgages.
Speaker #0
Well, the other thing my buddy did that I thought was kind of house hacking light maybe is you move into a kind of a crappy house. It was a starter home. He fixed it up himself. He lived in it for three or four years, then he sold that as well. So that could be another avenue to look at. But I'm a little curious from the mortgage standpoint. So like, okay, I'm a 25-year-old. I got my buddy moving in with me. I got an extra room. Are they counting that? do I need like a professional lease? Or just say, hey, here's my Venmo. It has a little house emoji. So that means it's going to be rent.
Speaker #1
So it really depends. So the situation where somebody is a boarder, there are a few loan programs that allow for boarder income to be counted towards your monthly income on a mortgage. But generally, no, we're really qualifying you based on your income, your debt, your assets when you're buying that house. The benefit for you is just, you know, your mortgage is two grand a month. You know, your roommate's going to pay you a grand. these numbers make sense for you, right? The more common, when we hear house hacking, and there's a lot of videos all over the internet about it, people talking about if you want to create generational wealth, you got to house hack. Some of the advice in them is great. Some of it is highly illegal, okay? Highly illegal. So we're going to break that down a little bit. But the most common way to do it is to buy a multifamily house, all right? So why do they want to do that? Well, if you buy a multifamily house as an investment property, meaning you are not going to live in that house, you generally have to put a lot down, right? 25% is... the norm. And that can be very expensive. And so for a young adult who's maybe just starting out, hasn't bought a house yet, they may not have 25% down to put on these houses. So they want to do it as a primary residence, meaning they're going to live in one of the units and they're going to rent either the second unit or the second and third unit if it's a three-family out. And that's really the house. I'm making air quotes right here into the microphone. That's really the house hack that people are talking about. I'm going to buy this as a primary. I'm going to live in one. other people are going to pay my rent from these other units and I'm essentially going to live for free. That is actually a pretty smart move. What can I do for you? Well, let's just break down a little bit of math. So you're going to buy a duplex and say it's $400,000. And that sounds outrageous right now, right? You're like, well, as a first time home buyer buying a $400,000 duplex, they might be because we're going to be using income from these other units, right? To help offset their income and allow them to qualify for more mortgage. When they do that, what they're going to do, say their mortgage payment is $2,500 a month. Okay. And this is worth talking about a two unit here. They're charging $2,000 to the other unit to live in there. So that essentially makes it so their rental, because I'm, and I'm making air quotes again, their rental payment to themselves is only $500 because that's what they're missing out of their mortgage payment. Right. So wouldn't we all love to have $500 a month in rent right now?
Speaker #0
That'd be great.
Speaker #1
That'd be great. Now, what if... these units, you've got two units. What if they're each three bedrooms? So you've got three people living in the unit next door and they're paying two grand a month total. And you've got three people living in your unit. You are one of them. And the other two guys are both paying 500 bucks. Now your mortgage payment's covered and you're making an additional $500 a month. So you're not just living for free, but you're making money on this. Now, do we really want to do this in our forties? Probably not. But like in your 20s, when you're living with roommates anyway.
Speaker #0
I had roommates basically until my wife. Is my wife kind of a roommate?
Speaker #1
Well, yeah. Yeah. Until you got to that point.
Speaker #0
I basically had roommates my entire life, adult life. Yeah.
Speaker #1
And I think most of us, again, I think that's kind of the millennial jam. Most of us have. You have roommates in college and you kind of never really stop until you move out either, you know, when you get your big kid job with a spouse, a partner, you know, a more permanent situation. But that's really sort of the house hack. Now, where it gets a little bit crazy on the internet is they talk a lot about these primary residence mortgages. And, oh, you only have to live in it for 60 days. Oh, just say it's going to be a primary residence, but you don't actually have to live there. This is the part where it becomes illegal. That's called mortgage fraud. And we've talked about mortgage fraud in some episodes before where that's a big deal. Mortgage fraud is investigated by the FBI, not your local police. You do not want to mess around in that. So generally, when you're signing a mortgage note, you're... kind of asserting that you're going to live in that property for at least one year. Now, should you do it if you know you're going to move out in one calendar year exactly? You're like flirting on the edge at this point, but the government does know that like people's plans change. Maybe you bought it and your job moved or something like that, right? But if they notice a pattern of it where you buy, say, a duplex, you move in, you live in it for one calendar year exactly, 365 days later, you're closing on your next duplex, which is... also a primary residence. You live in that one for 365 days and you close on your next duplex. And that's what a lot of these house hacking videos are encouraging you to do, right? Like you're just going to go from one to the next one to the next one. That's where you get yourself in trouble.
Speaker #0
Well, I mean, come on. We're talking about the government here, Kel. So... How are they going to possibly catch you?
Speaker #1
Great question. They care, okay? So they will catch you from a couple of different ways. Number one, underwriters and loan officers are trained to look for this kind of fraud. So as you're applying for additional mortgages, we're going to go, huh, there's an interesting pattern here. And it's pretty easy for us to really look at intent. So that's one of the things that we look at in mortgages is what is your intention? are you going to occupy this property? Can we really prove you're going to occupy this property? And does the occupancy make sense? So for example, say you own a beautiful single family home in a nice suburban town that's worth a half a million dollars. Okay. We know you're, maybe you're married and you have three kids. We look at your income, everything looks great. And then you tell us you're going to buy a three family in a more urban area that only has two bedrooms in each unit. And you're going to tell me that that's going to be your primary residence. People do this all the time. they try to do this. And we go, huh, does this make sense?
Speaker #0
Or you kids have a job that we don't know about. They're paying rent for you. Yeah.
Speaker #1
Like, what are we doing here? Why your kids now don't have enough bedrooms. Your income has not changed since when you bought that original single family. So there's maybe not really is a reason to downsize. Oh, but by the way, I'm going to keep that single family. I'm going to rent that out, too. But I'm moving to this multifamily. This is all red flags for a mortgage loan officer and for an underwriter. So that's one way they catch you. But honestly, especially state bond programs like the Connecticut Housing and Finance Authority and other programs like that, they actually have people that it's their jobs to check up on occupancy. OK, they will send door knockers to knock on your door and say, hello, who are you? Can I see your driver's license? Do you occupy this home? What do you occupy this home with? Because they're looking to see if the person who signed the mortgage saying they're going to live in that house is in fact who's living in the house. They will also do things like contact. Say you've got municipal trash pickup. They will go online. A lot of this stuff is public record. And they'll say, huh, who is the trash pickup registered to? That is not the person who bought the house. They will look to see whose cars are registered to that house. They will look to see where is the mortgage statement being mailed? Is it being mailed to the address that you're supposed to be living at? Or, oh, that's weird. This address is at 123 Main Street. It's the primary. But it's this mortgage statement's being mailed a few blocks away to a different address. This is all red flags.
Speaker #0
And that's easily trackable.
Speaker #1
Easily trackable.
Speaker #0
Yeah. You could, all that's public. You can easily look that up and it's not like they will not like it to be too, too, uh, sure. Like homesy to, to get, get that done.
Speaker #1
Exactly. But if you're going to house hack in the truest sense of it, where you're going to use an opportunity like this to build wealth, it can be awesome. So I have a great story. I have a client, um, who about 10 years ago, he bought, he was a young guy in his early twenties. He bought his first duplex. So he is from Manchester, Connecticut. Uh, there's a lot of duplexes to be purchased there. So he bought it, uh, um, duplex in really rough shape. So he bought this duplex. It was in rough shape. He spent two years fixing it up. He lived in it while he was doing it. He actually wasn't even able to rent one of the units out for almost a year because he had to put in a new kitchen and a new bathroom. But he spent all this time fixing it up. And he bought it, this was 10 years ago, for about like $140,000. Okay. And he probably put 50 or 60,000 into this complex, into this multifamily. He lived in it. He lived in it for four years. At the end of four years, he called me and he's like, hey, there's a three unit down the street. The main floor is bigger than what I'm living in now. I'm going to buy that one and move into it. Now, we had no reason to not believe him. It was a bigger unit. It was down the street. He did have roommates. There was no family that we were talking about. Nothing like that. He had lived in there for a few years already. He had no history of flipping. And we went, cool. All right. That sounds good. He bought the three unit. He did the same thing. So now he's renting out his duplex. He's got two people. and they were actually, their two rents were paying more than the mortgage payment. He took equity out of that house. So this is one of the big tenants of house hacking. So he took a home equity line of credit out of the first house. That was the down payment for the second house. He renovated that house. He lived there for another two years. He lived in one unit, fixed the other ones up. And at the end of it, he said, all right, I've been here for a couple of years. And he went and bought a beautiful single family home. He ended up with a partner. They were going to get married, have kids. So he now owns five units, income producing units. The second unit he managed to refinance when rates were really, really low, had a very low mortgage payment. And he was renting each of the units out for $1,800 a month, the first unit he was renting out. So he was clearing triple the two mortgage payments put together in monthly income from these. So he was just paying these mortgages down as quick as possible. Well, now he has the income to actually buy investment properties. So now we're in a position where he actually owns 10 separate buildings. he now can put 25% down on them because he's making enough money from these. And he actually quit his full-time job. So his full-time job now is he's a property manager. He owns all of these units and he's moved out of all residential. He's got some commercial units now. He's got some six units, which are bigger than what a residential mortgage loan will allow. But this is like his business at this point. And he started as like a 23-year-old guy who was just kind of looking for somewhere to live.
Speaker #0
All right. Why don't we kind of peel back the onion on this a little bit? Because I think this is a great case study to look at. So- He's what, 22, 23 when he started? Yep. So what did he have to put down in the first set of house? Is it 3% down? Was it the 20% you were talking about?
Speaker #1
So he used an FHA mortgage, Federal Housing Administration home loan, and he needed to put 3.5% down.
Speaker #0
Okay. So not a huge lump sum of money. I mean, you got to put some money in to fix it up. So that's another thing to think about. So if you are looking, okay, do I put 3% down on a quote-unquote ready-made move-in property? Or do I have some extra cash on the side to help renovate it? Because that's obviously going to push the value up, but you got to put some work and some money into it.
Speaker #1
Yeah. A little sweat equity goes a long way. We also really recommend for somebody who, and I have a lot of conversations with my multifamily buyers about this, is what do you have left at the end of this transaction? Okay. If we're going to deplete every dollar that you have, right? Like I need $20,000 to close and you have $20,100 to close. If you're buying a single family home, that makes me nervous. If you're buying a multifamily home, that makes me extra nervous. Because what happens in a multifamily? Well, number one, you are responsible for... the upkeep and the maintenance of the other unit, even if you're not living in it. What does that mean? If the fridge dies, you're buying a new fridge. If the toilet gets clogged, you're paying the plumber. You are in charge of that unit. The landscaping is you. Generally, the plowing is you. Whatever needs to happen to that unit, you are in charge of. So you do need money in reserve because you're now responsible for two households.
Speaker #0
Right. And anything can go wrong and that tenant is not taking care of that house as much as you would probably think they or want them to be.
Speaker #1
Exactly. So that's number one. Number two, you can have vacancies, right? And sometimes it's not, especially here in Connecticut. I highly doubt you'd have a long vacancy, but what if you've got a tenant moving out in June and your next tenant isn't going to come in until September? You might need to float that payment for a couple of months. We want to make sure that you have the money to do that. We again, call that reserves. And then the other piece to it is... generally in between tenants, you are going to have to go in and do maintenance to that property. You might be replacing carpets, redoing hardwood floors, painting in order to get the unit ready for the next tenant. It is not the exiting tenant's job really to fix that. And you may have a deposit on the tenant that has left, but there's a lot of rules regarding deposits. So you can't just say like, ah, it's not in great shape. I'm going to keep your $2,000 deposit. You have to give them an itemized list, receipts, what kind to get fixed. you have to behold that money in escrow during the time that they they're living in your unit so there's a lot of rules associated with it so i generally tell people it's probably in their best interest to have at least three months of their mortgage payment saved in reserve that we do not need to live on before you really undertake being a multifamily homeowner yeah i mean that's i think that's great advice because anything can go wrong um tenants
Speaker #0
can move out on you at a moment's notice and you know this is i mean especially depending on what state you're in because tenant-friendly states exist.
Speaker #1
We don't live in one.
Speaker #0
Well, that's good. Well, my property is a mass that I have. So that's a very tenant-friendly state.
Speaker #1
I actually said it the other way around. We do not have a landlord-friendly state in Connecticut. We have a very tenant-friendly state in Connecticut. And that's the other thing is you could have, you know, a tenant that chooses to not pay you. Right. Right. So you could have somebody living there where you can't rent it out and you're not getting money, money from it. And that, right? Like, what are you going to do? the eviction process in Connecticut is long and expensive. And again, they're always going to err on the side of the tenant here. So you want to make sure that, again, you have reserves to make up for it. Now, what can you do to combat that, right? So how do you make sure you have a good tenant? A couple of things. Background checks are imperative. There's lots of online programs and online systems where you can do background checks. You want to do a background check. Some landlords require their tenants to give them a copy of their credit report. It's not the worst idea.
Speaker #0
I did. You did?
Speaker #1
Yeah. Because then you can see, do you have any prior evictions? Do you have any foreclosures? Do you have any bankruptcies? Is there anything huge? Now, I would tell you, if you were just a layman, you looking at a credit report probably isn't going to be the most helpful thing because people don't really know how to read credit reports. You probably want to work with a professional. Realtors can help with this if you're using a realtor to help rent out your unit, but you want to look at a credit report. Requiring some sort of security deposit, a lot of times it's first, last, and one month security is common. But also, can you find a tenant that you know? Is it a friend of a friend? Can somebody vouch for them? Is there somebody's daughter or somebody's son or something like that? That can all really, really help when we're talking about how to vet your tenants.
Speaker #0
We also ask for income verification too. So we want to make sure, okay, can they actually afford to live here? I mean, credit report is nice. It says, hey, we do pay our bills on time, which you definitely want. But if your rent is too much for them to afford, you might want to. Make sure you have a good idea of what's going on with that. I did want to double back on one thing you had there with the home equity line of credit, because I don't know if our listeners are going to know exactly what that means. So I don't know if you want to get into explainer or you want me to kind of explain my experience using the home equity line.
Speaker #1
Is that what you did? Yeah. Let's talk about it. If you're the real life study of it.
Speaker #0
All right. So we didn't exactly house hack. So I used to live in Boston. My wife and I bought a condo in South Boston. We lived in there for about four years and then we decided to move to Connecticut because the home prices were literally half the cost of the ones in Massachusetts.
Speaker #1
Which is wild for those of us in Connecticut.
Speaker #0
Yeah. Well, I mean, we had incredible time because we were really February 1st of 2020. So like I was going under asking on offers, which is like unheard of nowadays. We're like, yeah, how dare you? I'm going to listen advice from you. This is all timing. So what we did is because we wanted to keep the house is we were going to say, okay, well, let's take the equity that we built up because we put money down into the condo. So we had equity built up from the money we put in plus the price did appreciate a little bit while we were living there so we had a little bit of a buffer so a home equity lets you say okay you've got you owe let's say let's say the house is 500 000 and you owe 300 you have 200 000 that is essentially quote unquote yours right so they'll let you do up to 80 loan of value and so in our instance we took about 100 000 out use that it's an interest only loan for 10 years so if the cash flow is an issue it can be a really good cash flow thing because you're only paying interest That said, you're not paying down any of the principles. So you can still have that debt there hanging over your head. But that's where you really have to do the numbers and make sure it's worthwhile to bring the tenant in. Are you getting clearance from that? But that could be a good way to get equity out without having to do like a cash out refi, for example. The other thing to watch out with the home equity lines is it's a variable rate. Yeah. So what you start off with, the rate will go up as we've experienced.
Speaker #1
Yes. And that's where the timing wasn't great for you in that sense of you probably got that when the rate was very low and you're like, this looks great. And now we're here in some, I'm going to say historic high rates. They're not historic in reality, but for us millennials, we can call them historic because we've never seen them before. We have not. And rates that don't feel the same as they did when you got that home equity.
Speaker #0
But I will say our home equity payment doubled basically because the rates went up.
Speaker #1
Wow. Wow.
Speaker #0
The good news, we had enough buffer in the rent to handle it. But that's something you have to consider if you're going to go down that road, because it's not like, oh, cool, my payment's $400 a month, and it'll stay that way forever. It's like, uh, uh, uh.
Speaker #1
Not so much. Now, the same token, rents have also gone up, right? Correct. So there is some wiggle room. Now, have you had multiple tenants in your condo? Or have you had the same tenant?
Speaker #0
I have actually had the same tenant the entire time.
Speaker #1
Well, that's a bonus right there.
Speaker #0
Yeah, she's great. A little needy sometimes. She asked me to move an air conditioner to three floors down to the basement, which I was not going to do, which I let her borrow. said air conditioner.
Speaker #1
You're like,
Speaker #0
that is not on my lease. It's fine.
Speaker #1
Now let's talk about leases. So how did you write up a lease? Did you just go on the internet and download a lease?
Speaker #0
No, no, I did not. So I used a real estate agent that I trusted. And he helped me with the whole lease process. He actually helped me vet him. So if you're trying to do all this stuff on your own to save some money, at least the way in Boston works, the tenant actually pays the first month's fee. So it's a weird situation where the landlord actually doesn't pay the person to work for them. the person moving in does. So if you're in Massachusetts, like hire a real estate agent, because you do not pay for their services and they help you out. They don't help the tenant out. So yeah, they have an attorney that they put up the whole lease. They laid it out for us. They did the background check for us. They did all that stuff. So I would have paid the money for that because to me, it's the insurance you have is essentially you vetting the tenant right ahead. And you're using an expert that has like, that's my first time being a landlord. I had no idea like, I don't know where I would get these leases from.
Speaker #1
What needs to be in the lease?
Speaker #0
Yeah. What, yeah. What doesn't need to be in the lease? What are some things you can negotiate? Like any of that stuff you really want to make sure you have. Um, like my tenant was kind of asking about, Hey, like I don't have a dog, but if I got a dog, I'm like, Nope,
Speaker #1
Nope,
Speaker #0
Nope, No dog. So I was, it was like, I was adamant about that. Um, so there's definitely things you can add and have them add in the lease. So that's typically what I would did. So I didn't, I'm not an attorney, but I would at least hire an attorney if you don't want to have a realtor come in and help show the property. Uh, but to me they were worth it.
Speaker #1
All right. 100% agree with that. So in my line of business, we do see a lot of leases sometimes from landlords who are trying to buy another property. We end up getting all of their leases. And I have seen some spectacular leases and some absolutely terrible leases. Leases written on the back of restaurant napkins, like, you're going to pay me $1,000 a month. Thank you. A lease is protection. And think of it as insurance almost, where that lease is going to be if your tenant decides to stop paying and you have to evict them. everything needs to be spelled out in that lease.
Speaker #0
Like if you go to a court, are they going to laugh you out of the courtroom? Correct. Are they going to look at this and say, okay, this is legitimate. This is something that they're a breach of contract because this is contract we're talking about. Yep,
Speaker #1
yep. And exactly. So I would tell you having a good real estate attorney is imperative in this process. And that's something that as you're working with your loan officer to purchase the property and your realtor to purchase the property, like start having conversations. There are real estate attorneys that really only do purchase transactions, but there are real estate attorneys that also specialize in things like tenant law. who can set you up from the get-go to have these leases, to be prepared for evictions, to be prepared for all of that sort of stuff before it actually happens. Because it can get really dicey if you are not prepared. And it can get really dicey if you are, again, downloading things off the internet. You're like, there's a ton of websites out there where you can pay $25 and download a residential lease. But what state's that for? Who has vetted it? Yeah, because... again, different states, as Derek said, have very different tenant laws.
Speaker #0
Yeah. And I think the other thing for me is they actually laid out like what's expected of the landlord and what, what, like what's your response and what's not. So like me moving an air conditioner was not in the lease.
Speaker #1
Yeah. So you're like, no, you're on your own. Well, what's some other stuff to, to pay attention to? So I have a couple other, where can this go wrong? Okay. So number one, evictions. That's the number one place where multifamilies are owning other units go wrong. You have somebody who stopped paying. Now, sometimes people stop paying because they're jerks. Okay. Sometimes people stop paying for legitimate reasons. And now you're dealing with sort of the emotional aspect of it too, where, you know, you, maybe you have somebody who has an accident or an injury or an emergency and they can't afford to pay you. So you're like being nice and you're no longer following your lease and you're not charging them interest. And you're like, it's okay. Get it to me a little bit later. And that can actually open you up for, for legal proceeding. So if you don't follow your lease, that can get you in trouble. So you have to be really careful. Another thing, especially in multifamilies, if you are living in your multifamily, you are both the landlord. and the neighbor. So the blurring of your personal life and this business that you own can be really big, right? So, you know, it's one thing like your tenant lives in Boston. So for her to get to you, she's got to call you on the phone. She can't come bang on your door at two o'clock in the morning. And if you were living right next to your tenant, that can absolutely be the case. You could get the bang on your door and the doorbell ringing at 2 a.m. What if your tenant is crazy? What if they're really dramatic? What if they're really high needs and you are living next to this person? You can't just evict them because you don't like them. Right. Right. You could be stuck with a lousy neighbor because you pick poorly in your, in your tenant search.
Speaker #0
Well, I think you, you said that the, probably the, the key point here is this is your business. Once you start doing this, like you get a tax return and you pay taxes on this. Um, this is a business and you have to treat it like a business. So if you're living next to a quote unquote friend or anything like that, you've got to be real clear with all of this stuff. Uh, or even don't try and make friends with your, your tenant. I mean, it may be a cool person that may be great, but like.
Speaker #1
there's some liability that you can look out there and i don't know i would just i'm glad my tenant lives in a different state i'll just say that well and sometimes what people do especially when they're living on site is they will not tell the tenants that they are in fact the landlord they will use a third party property manager to manage things and they will just kind of pretend they're another tenant and that can sometimes ease the pain a little bit of living next to the person um because they may not even know you're the owner of the home right They may not even know. Something else to keep in mind are city and state rules and laws regarding owning a property. So things like some states and towns have a maximum number of occupants, right? So you can't necessarily just rent, like you've got a three bedroom, you can't have six people in it. You might only be able to have three people in it. You need to know that before you start renting these properties out. And sometimes again, in like house hacky world, we'll see some of those videos on. online where, yeah, you're going to put bunk beds in each room and you're going to stack these rooms and you're going to have 12 people living in the three bed. That might be very illegal in the state that you're living in or the town.
Speaker #0
Yeah. So don't stuff people in drawers.
Speaker #1
Don't stuff people in drawers. Also things like egress. Okay. So that's a big one. If you are renting a property out, you have to make sure that there's proper egress in case of an emergency or a fire. And you might be like, basements are a big place. This happens if you have a finished basement. Okay. I mean, there's rooms down there. You might be like, that's cool. Well, if they only have those little tiny windows at the top, that may not be proper emergency egress. And if an emergency ever happened, you could get cited. You could get fined. There's a lot of negative stuff that could happen. So you want to make sure, again, before you're renting these out, that you have proper egress. You know how many people are allowed to live there. You meet codes for things like fire suppression, fire alarms, CO alarms, all that sort of stuff. So you need to do your research. We can't tell you what that is because it is very city-town jurisdiction specific.
Speaker #0
Wow. Okay. So you talked about all the bad stuff. Is there anything good about house hacking?
Speaker #1
The big thing is, right, people are trying to afford houses in this market. And again, if you can get into a property, be paying yourself rent along with having other people pay you rent, it can really help build equity. Again, we hear that term generational wealth a lot in these house hacking videos. House hacking, if done correctly, can absolutely be a great investment and a great way to build generational wealth. I would just tell you that like... TikTok videos, Instagram reels, they may have some good tidbits in them, but you have to do your own research to the laws, the rules, the regulations of your area of your state. You have to know what you're allowed to do and not allowed to do. And you also just have to make sure that you really understand your own finances before you're taking on the responsibility of other people's finances. Because when you have tenants, again, you're dealing with your own financial situation, but you're also managing other people's as they have to pay you and pay you on time.
Speaker #0
Right. I mean, so that's where, if you don't know... Ask a professional. There's people that have been through this. Ask them. But to me, this could be a phenomenal way to build wealth because one of the ways I look at it is mortgages stay flat. Your mortgage payment is the same moving forward. The only thing that changes is your insurance and your taxes. Yep. but your rents can go up. Every year.
Speaker #1
Every year. And again, what I always tell people, say you rent an apartment for five years. At the end of five years, what do you do? You hand the keys back and you got nothing. Nothing. If you own the property, you sell it. And are you going to get 100% of your equity back that you've paid into it? Maybe not. Right now, yes, because the market's great. In regular markets, maybe not. But even if you got 50% of what you paid back, you are farther ahead than you are if you're renting. There's no doubt.
Speaker #0
And hopefully you're cash flowing because that should be the goal of you renting. So if you're losing money, five, 600 a month, it's probably not the best. Move on. I think that's one thing where don't force it when it comes to looking at property. Have some metrics for, okay, if I buy it for this, the mortgage is going to be this and the rents in the area are that. So if the mortgages are two grand all in with all the costs and your rents are 1,500, probably not the best investment. So think about that that way. You know, if you put in 50 or 60,000 and you can get, you know, five or 600 a month in cash flow, that's an awesome return on your cash. Awesome. Because there's a nice leverage piece to real estate that we're not like, you know, normally getting on other investment vehicles. And then there's also, I mean, I'm not an accountant, definitely talk to an accountant on it, but you have depreciation opportunities and rental properties are very tax efficient. The code is very helpful for those that want to invest in real estate. So if you're complaining about paying too much in taxes, I mean, you're not gonna be able to offset your income with it, but there's a lot of opportunity there for those that do want to, you know, learn about house hacking and how to do it.
Speaker #2
And if there is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes, the purchase of certain securities may be required to affect some of the strategies. Investing involves risks, including possible loss of principal. The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

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