House hacking is an incredible way to improve your financial situation in your 20s and 30s. House hacking allowed me to pay down my debt, increase my savings, and grow as a personal.
In this post, you’ll see the true financial results from my house hacking experience.
From 2015 to 2019, I hacked my housing expenses by renting out multiple rooms to friends in my house.
House hacking is a great way to reduce your housing expenses, and also a great way to gain experience as a landlord.
Over the past 4 years, I’ve learned a ton and improved my financial situation greatly. For anyone in the early stages of building wealth, house hacking is definitely something to consider.
In this post, I want to share with you the financial results of my house hacking, talk about how expensive houses are, and give you some inspiration to consider house hacking.
Why I Decided to Sell vs. Rent My House
Before I get into the financial results of my house hacking, I want to talk about why I sold my house vs. wanting to potentially rent out my house.
I bought this property in 2015 for $287,900. Previously, it was a rental property and was renting for ~$1,900.
In 2018, I started having thoughts that I didn’t need as much space and wanted to downsize.
While the property was amazing, and definitely had potential to become a rental property again, I started to run the numbers and I wasn’t so sure it made since for my financial goals.
When I started looking at comparable houses in my neighborhood in 2018, I looked at my house and thought I could list it for sale somewhere in the $350,000 to $400,000 range.
At the time, my mortgage balance was sitting around $250,000, and with this sale price, I could get out a significant amount of equity from the property.
In terms of it being a rental, I think I could have rented it out for ~$2,200-$2,400 a month, and with a mortgage of $1,835 a month, I would be cash flow positive.
$400 a month is $4,800 a year in cash flow, and while this seems decent, when looking at the potential of what kind of cash I could get out, this didn’t seem like an no-brainer use of the capital.
Also, even though the location and house is amazing, there were upcoming repairs and challenges with the house. It was built in 1900 and needed some updates.
My decision came down to if I could get $50,000 to $100,000 out of the property via a sale, then I could potentially buy multiple rental properties, start a business, invest in stocks, etc. With these proceeds, I could potentially make more than $4,800 a year in cash flow – and not have to worry about property management of this property.
This lead me to wanting to sell vs. renting it out.
Financial Results from 4 Years of House Hacking (from Purchase to Sale)
Below I’ve created a table with all of the housing related income and expenses I had over the last 4 years.
As mentioned above, In 2015, I bought the house for $287,900, and using FHA, I put down 3.5% (and it ended up being more like 2% due to some fees).
With mortgage closing costs included, I started off on my house hacking journey with ~$10,400 into the property.
After moving in, I had 3 roommates join me. My initial mortgage payment was $1,820, and my monthly rental income was $1,650.
Increasing my income is a goal of mine, and with house hacking, I was able to accomplish this.
Over the next few years, friends and roommates moved in and out of the property, and also had a few housing improvements and repairs.
With all of this income and expense, I’ve looked to categorize it appropriately above.
Fast forward to July 2019, I decided to sell my house, and was able to sell for $375,000.
My mortgage balance when I sold was ~$245,000, and after agent commission and other fees, I walked away with roughly $110,000.
Tallying all of this up, over the 4 years of house hacking, I “made” just over $11,000 to live.
But I’ve left out where the cool part of house hacking comes in.
House Hacking vs. Renting – An Opportunity Cost Analysis
In the calculation above, I included the principal payoff as an expense. When you pay down the principal, yes, technically it is going back to you, but it’s not unlocked until you sell.
Since I’ve included the principal payoff as an expense, I need to make an adjustment to the final profit number.
I haven’t considered the opportunity cost of renting a place.
If I was to rent out the room I lived in for 4 years to myself, I would have charged $800 a month. Adding in $800 a month for 4 years, I actually “made” nearly $50,000 to live.
$50,000 over 4 years, or $12,500 a year to live.
As mentioned above, when I got my house, I paid $10,400 upfront (down payment and closing costs).
Looking at the final profit number, I made $12,500 a year for 4 years – a return on investment of 120.19% a year for 4 years.
Those are some ABSURD returns.
These kind of asymmetric pay-offs are what you need if you want to build wealth fast without having a lot of money.
Real estate has this type of potential, but there are also some other thoughts I want to reflect on and share with regards to real estate and house hacking.
Houses are Expensive and The Potential for Real Estate Gone Wrong
While I made out really well on with my house hacking experience, there are a number of things which could have gone wrong, or also lead to much lower returns.
For one, I didn’t have any major repairs or accidents with my house.
For example, I could have easily had to repair the roof, replace a water heater or furnace, or dealt with water damage in the basement.
These things would have potentially cost thousands of dollars and also lead to headache and stress.
In addition to these potential repairs and damages, house prices are NOT guaranteed to always go up.
We live in a world with finite resources and finite space. Real estate is very cyclical and dependent on location and demand.
I happened to buy at a great time and rode some nice appreciation (33% in 4 years).
However, this might not be the case for other people who buy in other areas or at other times.
Finally, property taxes is another factor I want to discuss.
Property taxes keep going up all over the United States. As you may have noticed above, from 2016 (the first full year of living in my house) to 2018 (the last full year), my property taxes increased $1,500!
In 2019, they were set to be $5,200 – an increase of $2,200 in 3 years!
In 3 more years, would they be $7,400 a year? I have no idea, but depending on the area you live, this could definitely play into lower returns.
Again, I was pretty lucky with my house hacking, and am thankful for my experience. What do you think?
What are My Thoughts on House Hacking?
I’m done with house hacking for now, but still believe it’s an amazing way to reduce your housing expenses and improve your financial situation.
House hacking allows you to cover some of your mortgage and increase your monthly cash flow.
One thing I should say, though, is house hacking is not for everyone.
As a 20-something person without a spouse or kids, I was able to take this risk.
However, you may not have as flexible of a situation as I did, and I want you to think critically before jumping into real estate.
There’s no guarantee that house hacking will work for you, but there is certainly great potential!
Thank you for reading 🙂
