How to “Hack” Your Housing and Get Paid to Live for Free

The Internet is full of "hacking tips." I'm sure you've seen them, with clever tricks like storing your pancake mix in old ketchup bottles or dipping your Oreos with a fork through the frosting. Sure, those are fun little tricks – but how much do they really improve your life?

Today I want to share a "life hack" that, when properly implemented, can have a dramatic affect on your wallet and the financial destiny of your family. This is much more than simple tricks or ideas to shave five minutes off your work day.

This is epic, life changing stuff.

I'm talking about hacking your housing and living for free. I'm talking about building wealth automatically and getting paid to do it. I'm talking about buying an owner-occupied multifamily property and getting paid to live for free.

Wait, what?

You heard me – it's often called an "owner-occupied multifamily property" but you probably have heard other names for it, like "duplex," "triplex," or "4-plex." Yes, I'm talking about the properties that have more than one unit but don't quite fit the "apartment complex" category. There is a good chance you've even rented a unit in one of these places in the past or you know someone who has. They exist in every market, every neighborhood, and every price point – and by purchasing a small multifamily property, living in one unit, and renting the other units out – you can live for free and get paid to do so.

Let's get started.

Are You Ready to Buy a Home?
When I bought my first house, I took a hammer and put a giant hole in a wall – just because I could.

You see, buying my home was exciting because it was mine.  I could do what I wanted, when I wanted to – and no landlord was going to tell me "no." For me, owning a home is one of the greatest feelings there is.

However, buying a home is not for everyone.

If you are flat broke, up to your eyelids in debt, switching jobs every 2.5 weeks, and can't seem to avoid calling those late-night informercials for crap you can't afford... maybe it's best to get your life and budget in order first. Buying a home is not a light-hearted, flippant decision.

However, I also don't believe buying a house needs to be a task only for old, boring people. If you have decent credit, a stable job, and a small amount of savings – you can enter the world of the homeowner.  Even more so – if you are smart about it, you can enter the world of the real estate investor at the same time and start hacking your living expenses.

Why Purchase a Small Multifamily?
By purchasing a great small multifamily deal, the rent that your tenants pay each month can cover all of the expenses for the property – and more.  For example, if you buy a 4-plex, live in one unit, and rent each of the other units out for $500 a month, you could be making $1500 per month in income. If your loan, taxes, insurance,  utilities, and other expenses come to just $1200 – you could get paid $300 a month just to live in the home.  Even better- when it comes time to move out into your future home, you can rent that 4th unit out for even more income.

However, I'm getting ahead of myself a bit.  Let me explain first how to buy a small multifamily property.

Where to Find Small Multifamily Properties
Trust me – these properties are everywhere.

The easiest way to find them is by speaking with a real estate agent. Ask your family and friends for recommendations and start up a conversation. The best part about working with agents is that it's totally free for you! The seller of the property typically pays for the agent, which means you can ask a thousand questions and get a thousand answers without needing to pull out your debit card.

Use this!

Keep in mind, however, that you are only looking for properties that have 2, 3, or 4 units. Once you hit 5 units or more, the entire world of real estate changes into something you don't want to mess with (commercial real estate.) So for now, focus on the duplexes, triplexes, and 4-plexes.

If you want to just start looking, you can also use sites like Realtor.com, Zillow.com, or Trulia.com to start looking at properties. With each of these sites, you have the ability to limit your searches to only multifamily properties.  Start looking at the cheapest properties in your area and try to find neighborhoods that you would want to live in.

Don't be scared of homes that are a little "ugly" or have been foreclosed on. Although they may require a few weekends of painting with your buddies – you can often get substantial discounts because everyone else is scared away.  In fact, my favorite feature in any property I am considering is the smell.The worse, the better.  Why? Because smell is the easiest and cheapest thing to fix (usually just by installing new carpet and repainting) but drives 99% of home buyers from even considering the deal.

What Makes it a Killer Deal
If there is only one lesson you learn from this post – it's this:

Find a killer deal. 

You see, if you are trying to "hack" your housing, not just any deal will work. In fact, I'd wager that 90% of the small multifamily properties out there are not going to give you the results you are looking for... which is cash flow.

Cash flow is the extra income left in your bank account each month after all the bills have been paid. If you can get your rental units to pay all the expenses and there is money left over – that money is yours. The trick, therefore, is finding properties that provide this cash flow.

The best trick I know for quickly estimating if a property is going to provide cash flow or not is known as the 50% rule of thumb.  Essentially, this rule of thumb goes like this:

Take the total income of a property and divide it in half. Those are your expenses. Now take out your loan payment. The remaining money is your estimated cash flow.

Let's do a real life example of this:

You find a 4-plex for sale for $200,000, where each unit would rent out for $800 per month. If you rented three of the units out, the total income would be $2400 per month. Divide that in half and you are left with $1200 per month to pay the mortgage. A loan on $150,000 (Cause you don't pay full price, and then you put down something for a down payment), at 4% for 30 years is about $700 per month, which means you could get paid $500 per month to live for free. This would be a killer deal.

Keep in mind, however, this rule is just a rule of thumb – so make sure you use this as a quick and dirty way to filter lots of properties, and when you find some great potential properties,  look at all the expenses for the property and figure out what all the costs truly are. To learn more about the analyzing properties using the 50% rule, check out this post and YouTube clip.

How to Fund Your Property Purchase
Maybe you have lots of cash and can simply write a check for a home. In that case – awesome!

However, chances are – you are probably not able to pay the hundreds of thousands of dollars needed and are going to need to get a loan (mortgage) from a bank. With any loan, you are going to need to supply a certain amount of money to get the loan, known as the down payment.  While the "no down payments" mortgages have mostly gone by the wayside, there are still options for purchasing properties with low down payments, ranging from 3.5% down payments for FHA loans (offered at most banks) to 20% down for conventional mortgages.   There are even loan programs (like the 203K loan) that allow you to include needed repair costs into the loan, so you can come to the table with even less cash.

The best way to determine what the best loan is for your deal – speak with a qualified mortgage professional at your local bank or credit union.  Just like with real estate agents, these mortgage pros are free to use and talk with (they get paid from fees from the loan – you should never need to pay upfront) so don't be afraid to pick up the phone and start fielding your options.

Managing the Property Without Going Insane
After closing on the purchase of your small multifamily property, you are now a landlord! At this point, it is imperative to learn how to be a landlord – and start running your business like a business – not a hobby. Read a few books on being a good landlord, make friends with local investors that you respect, read blogs that talk about landlording, and don't stop learning.

Being a landlord is not as difficult as the horror stories you may have heard of – if you follow some very simple guidelines:

  • Screen your tenants like you would a job applicant. Keep your emotions out of it and look at the facts. For an exhaustive guide on the best way to find awesome tenants, check out The Ultimate Guide to Tenant Screening.
  • Have a written policy to refer to. Stick to your policy when dealing with tenants.
  • Outsource things you don't want to do. If you don't want to fix toilets – don't fix toilets. Find handymen, property managers, or others who can handle the aspects of the job you don't want to do. If you found a great deal when you bought your property (which you should have!) the cash flow can pay for these things.
  • Never rent to family or friends. Trust me – it never ends well.
  • Treat your business like a business, not a hobby. Set up processes and systems to handle the problems that will arise.

Being a landlord is not always the most fun activity, but by following these simple guidelines the process can be much easier and your problems minimized.  There are over twenty million landlords in America, so you are not alone in your journey. If you run into any problems, just ask those who have come before for help and you'll find most seasoned landlords are more than willing to help.

What Next?
I truly believe that purchasing a small multifamily property can change your life, free up your finances, and start you down a path toward building wealth through one of the most powerful channels there is: real estate. This article is the start of a conversation, and I hope you continue this conversation after reading.

More ways to get started today
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This article is Copyright 2014 BiggerPockets, Inc.


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  • Report this Comment On December 21, 2013, at 5:58 PM, pgknopp wrote:

    "...dramatic affect..."? Please use a dictionary.

  • Report this Comment On December 22, 2013, at 11:47 PM, CrazyDocAl wrote:

    How is this hacking? This has been going on for a lot longer than the term "hacking" has been around.

    Being a landlord is not a fun thing. Expect a phone call at 3am telling you that a pipe broke and water is spilling everywhere on a night when you need to be at work the next morning at the top of your game.

    Expect that the nice guy you rented to moved his hog into the living room so he could tear it down and rebuild it over winter. That the deposit isn't even going to cover the cost of the carpet.

    Expect a tenant to stop paying you in September, going to court in November, getting told you can't kick them out until spring 8, 8 months later.

    So that's some of the bad. But the biggest is that you will have to become a landlord. If you do and you put the time in as well as keep on top of as much as possible then you can make your payments and save up for the house of your dreams in the not so distant future.

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