My House Hack in Los Angeles
House hacking has become one of the most talked-about strategies in real estate investing, and for a good reason. It offers an incredible opportunity for individuals to dip their toes into the world of real estate, build wealth, and achieve financial freedom. But what exactly makes house hacking so awesome? Let's dive into the key reasons:
1. Low Barrier to Entry
One of the biggest challenges for aspiring real estate investors is the substantial amount of capital required to purchase a property. House hacking lowers this barrier by allowing you to live in the property while renting out a portion of it. Whether it's a multi-family unit, a single-family home with rentable rooms, or even an accessory dwelling unit (ADU), house hacking enables you to qualify for owner-occupied financing. This often means lower down payments and better interest rates, making it easier to get started.
2. Significantly Reduce or Eliminate Your Housing Costs
Housing is typically the largest expense in most people's budgets. House hacking can drastically reduce or even eliminate this cost. By renting out part of your property, the rental income generated can cover most, if not all, of your mortgage payment. In some cases, you might even turn a profit while still living in your home. This can free up cash flow for other investments, savings, or simply enjoying a better quality of life.
3. Accelerate Wealth Building
Real estate is a powerful wealth-building tool, and house hacking accelerates this process. As your tenants pay down your mortgage, you build equity in the property. Over time, as property values increase, your equity grows even more. Additionally, the cash flow generated from tenants can be reinvested into more real estate or other investment opportunities, further accelerating your path to financial freedom.
4. Learn the Ropes of Real Estate Investing
House hacking is an excellent way to gain hands-on experience in real estate investing without diving in headfirst. Managing tenants, maintaining a property, and handling finances are all crucial skills that you'll develop through house hacking. This real-world experience is invaluable, especially if you plan to expand your real estate portfolio in the future.
5. Tax Advantages
Owning real estate comes with a variety of tax benefits, and house hacking is no exception. You can deduct mortgage interest, property taxes, and depreciation, reducing your taxable income. If you rent out part of your home, you can also deduct expenses related to the rental portion, such as repairs, utilities, and insurance. These tax advantages can significantly improve your overall return on investment.
6. Flexibility and Creative Living Arrangements
House hacking offers a level of flexibility that traditional homeownership does not. You can choose the type of property that suits your lifestyle and investment goals. Whether you prefer living in a duplex, triplex, or single-family home with a basement apartment, there are countless ways to house hack. Additionally, as your needs change, you can adjust your living arrangements accordingly, such as converting a rental space into additional living space or vice versa.
7. Mitigating Risk
Investing in real estate always carries some level of risk, but house hacking helps mitigate this risk. Since you live on the property, you're better positioned to manage and maintain it, reducing the likelihood of costly repairs or tenant issues. Plus, the rental income provides a safety net, helping you weather market fluctuations or unexpected expenses.
8. Pathway to Financial Independence
For many, the ultimate goal of house hacking is financial independence. By minimizing your housing costs, building equity, and generating cash flow, you can create a sustainable income stream that supports your lifestyle without relying on a traditional 9-to-5 job. House hacking can be the first step towards achieving this level of freedom, allowing you to live life on your terms.
Conclusion
House hacking is an incredible strategy that offers a multitude of benefits for both novice and experienced real estate investors. It lowers the barriers to entry, reduces housing costs, accelerates wealth building, and provides valuable experience in managing real estate. Whether you're looking to achieve financial independence or simply want to make smarter financial decisions, house hacking is a strategy worth considering. So why not take the leap and start your journey towards financial freedom today? Below are some details of my house hack in Los Angeles.
Investment Info:
Purchase price: $890,000
Cash invested: $500,000
House Hacking. Currently living in the main house while renting out the back house. Airbnb'ed the guest house for awhile, but laws in Los Angeles changed and forced us into long term renting. It all worked out for the best!
What made you interested in investing in this type of deal?
My wife and I wanted to purchase a single family for ourselves, however, there was a private guest house in the back where we heard the previous owner used it as a short term rental.
How did you add value to the deal?
We put in $100,000 in renovations. It took about 4 months, but very happy with the results!
What was the outcome?
We didn't mean to rent out the guest house, but it has been a steady flow of income for our family and can't imagine life without it. Pre-school was not cheap!
Lessons learned? Challenges?
Two rookie
#1. Pick a place where the colors are not affected by the lighting. We wanted a beige color, but when we looked at samples our yellow lighting altered the way we saw the colors. So our first try, our contractors painted the house pastel purple. This was our fault.
#2. Our granite sample was small and when it's small you don't realize that you can feel differently as a big slab. We changed it once the slab was already cut. Costing us a lot of money.