House Hack…nah, Home Hack

[Jamie Labrec]

Do you want to start REI but don't have a big stack of cash laying around? This is not a house hack it's a home hack because a home is a place where one lives permanently. In my specific case, I home hacked because I have no intention of moving. With the current mortgage rates, people are looking to refinance into lower rates. WAIT! What if you have an unfinished basement, now might be a good opportunity to finish that basement off.

Now this is all dependent on your market but in January I decided to finish the basement of our house. I live in Wisconsin and contractors cost roughly $70 an hour. Like most people I make less than that per hour, so it was in my best interest to complete the project myself. Otherwise I would be sitting on my couch watching Dancing with the Stars; not doing anything. Before I continue, I enjoy construction (I’ve built the only two homes I have lived in). Guess this would be considered my hobby so I decided to tackle this 1064 square foot project myself. WHAT, THAT’S CRAZY! The project took me four months to complete. Although I had a three-month timeline I don’t consider the extra month a waste of time because I was still working a full-time job and spending time with my family, so I could be a part of the little things in their lives.

So how did I finish the basement? I installed two things that add value to a house (bedroom and bathroom). This helps to create appreciation into the property. When it comes time for the appraisal your comparable houses play a huge part into the value of the property. The higher the bedroom and bathroom count the better; generally. It is possible to overbuild your property and not be able to regain the value you put in so be careful here. Look around the neighborhood to determine how other properties are configured (bed/bath & square footage). You will want to stay around the same.

The property was finished off with a family room/rec room and a den/office. With the work and finishes that were put into the project, it was completed at a cost of $10,000. Is my time added into this, no, but some of the things you learn (mentioned below) are invaluable. After the appraisal, I created added equity of 100k; that's 10x what I put into it. The next step in all of this was to cash-refi. I've been able to get rid of the PMI we had on the home, lower my APR by over 1%, and pull out 50k in cash.

Guess what! Now you have that cash pile needed to start your REI. If you can work on the project like this, you were able to gain some additional skills or polish some of them up. You learned what you liked and hated about construction. This is valuable when you go to do a deal as you know what projects you will tackle and which ones you will subcontract out. Don't forgot, you would have looked at several ways to finish a certain project (paint, flooring, lights, etc) so you now have a starting basis for what things cost. Now when you walk a property you can start to estimate your rehab budget. Only information you are lacking is your labor cost.