A year ago we posted a case study of a first time house hacker and now, exactly a year later, we’re here to share the story of his second house hack.
If you want to build wealth through real estate, live for free and gain financial freedom, then this story could be yours too.
A Look Back to Last Year:
Towards the end of college, in his early 20s, Nikhil caught on to the concept of house hacking via social media, YouTube, BiggerPockets and reading books. While others were doom scrolling, he was microlearning.
After just 2 years of savings from his W2 job, reducing expenses by living at home and the help of a CHFA loan Nikhil had saved enough to buy a $542,000 5 bed, 3 bath house in the Denver suburbs.
Read the case study here to learn more about the deal and see the deal analysis.
There is nothing special about his story. Not a trust fund, stroke of good luck or anything that an average 22 year old couldn’t do. At a time when the median age of the first-time home buyer is at an all time high, 38 year old, savvy investors, like Nikhil are breaking the norm and investing in real estate to build their long term wealth.
On to Deal #2:
Through the process of house hacking, that is spelled out in The House Hacking Strategy, Nikhil was prepared to buy house #2. Here are three things that lead to him being eligible and able to buy a second property just one year later:
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- After one year, he became eligible to move out of his first property and purchase another with just 5% down using a conventional loan. The reason for waiting is that when you take out a primary residence loan, lenders require you to live in the home for at least 12 months. Moving out sooner would violate the mortgage agreement.
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- By living for free for a year, and dedicated savings from his W2 job he had saved enough for a down payment on his next property.
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- He had a good team, and his lender suggested a down payment assistant program that he qualified for, making him eligible for a more expensive mortgage. This gave him the opportunity to upgrade his lifestyle with house #2 – one of his key goals in his second deal.
Nikhil planned to be on the hunt for the right deal for most of the summer, yet he was under contract within 2 weeks of starting the search. The property he landed on in the south west area of Denver was turnkey with the ability for forced appreciation with the addition of one bedroom. The house also had more square footage, more common areas and better outdoor living spaces than house #1. His first house was on a busy road and noisy, this one is tucked into a quiet neighborhood.
This is where the comfort continuum comes into play. Some investors might want to continue to squeeze cash flow out of their house hacks, and others, will “move up on the scale” for a more comfortable living situation such as a nicer house, like in this case, or a duplex, or separate ADU for privacy.
Deal #2 – The Numbers:
Purchase Price: $600,000
Rehab Budget: $15,000
Closing Costs: $15,000
Down payment: 5%
Interest Rate: 7.125%
Rental Income:
Room 1: $950
Room 2: $800
Room 3: $900
Room 4: $1,100
Room 5 ( Owner Occupied): $900
Total Monthly Income: $4,650
Expenses:
PITI(+PMI): $4,441
Vacancy, CapEx & Maintenance: $697.5
Monthly Cash Flow: – $1,389
But wait! He’s losing money….BUT is he?
Average rent in Denver for a single renter is $1,650. That is money that renters turnover to their landlord in exchange for a place to sleep, thus paying down someone else’s mortgage. For Nikhil, his $1,389 expense is less than that plus it includes reserves to maintain the property and ultimately he’s paying himself! That “expense” pays down his mortgage, builds equity and provides him a cash advantage.
When you add up the financial benefits of home ownership between appreciation, principal payments and the tax benefits Nikhil IS living for free.
What’s Next?
When rates drop, and Nikhil can refinance say from the 7.125% to 5.5% interest rate, he’ll be cooking with cash flow on both investments. Never buy a property needing for that to happen to make the numbers work, but it’s an added bonus when it does.
And in terms of what Nikhil is focused on for deal number three, he’s thinking about a 5+ multi-family commercial investment. We’re looking forward to reporting back on his success in a year!
If you’re new to the idea of house hacking or ready to jump into your next deal – reach out! Let us know how we can help you achieve financial independence through real estate
