House-Hacking My First Home to Begin My REI Journey

[Everett Johnson]

The year is 2013. I've just accepted a job offer near my hometown and need to decide where to live. I can get my own apartment and enjoy the young, single life maybe living near downtown, or my parents have generously offered my old room back for free while I save up for a down payment for a home. I know not all people have the opportunity to live rent-free with family, but the rest of this post holds true. It may just take a little longer to save up without this privilege.

You can guess that I chose the latter and moved back in with mom and dad. For 12 months, I >acted< like I had a rent payment (very important) and stashed that money away as a down payment. At the end of that first year, I began shopping for a home. I targeted a home that would either make a great rental one day or re-sell very easily, so I chose a 3 bedroom-2 bathroom house with a 2-car garage in a good school district. The Texas real estate market is RED HOT. I go look at the house for 15 minutes on my lunch break on the first day it's listed. List price is $169,900. I offer $180,000 to beat the competition, and the appraisal ends up bringing it back down to $175,000.

With about $12,000 of my saved cashed from pretending that I actually had a rent payment, I am able to use an FHA loan to purchase the house. Immediately, I rent out the two spare bedrooms to two young male friends for $450/month each + shared utilities. I could have charged more here, but I preferred quality roommates over higher rent payments. I get to live in the master bedroom with my own bathroom, and with the all-in mortgage payment (principal, interest, taxes, and insurance) being approximately $1,500/month, my share of the mortgage is only $500.

Over the next 2 years, I pay the entire mortgage payment from my own income (I did get approved to be financially able to make this payment after all), and I put their rent payments into a separate savings accounts. Also during these 2 years, I am investing extra capital to completely remodel and update this dated home from the 1980's. So it's actually house-hacking in two different ways: I am renting out part of it and it's acting as a live-in flip! Flash forward those 24 months of taking in rent, and my roommates are moving out as my new wife moves in. My special savings account for the rent payments is up to $21,600! With this kind of cash on hand, I am able to buy my first rental property 2 weeks before my wife moved in. Read about that in my next post!