House Hacking | How I Created a $78.67 Monthly Housing Bill

[Alec Minkow]

 Hi everyone, never posted on here but I have been listening to the podcast for years now, even through my college days. Now seems like a cool time to share my story and connect with other investors and real estate lovers! Apologies for the typos and long read, hope my math is solid and hope you enjoy!

I’m a 24-year-old Realtor, I’ve been working in Real Estate for just over 3 years now. I grew up around a family in real estate; lenders, escrow officers, escrow assistants, notaries, real estate attorneys, and now I’m the first agent. Listening to the podcast the subject that always got me excited was guests talking about “House Hacking.” I always knew my first purchase would be some form of a house hack, I just felt it set you on a path of financial freedom and even on your first purchase! This led me to where I am at now.

A little over two years ago I bought my first property, the second I walked into this cozy 1300sqft 3bed single-family with a detached two-car garage I knew what I wanted to do! I represented myself and 30 days later I moved out of my sister’s condo and into my first home, but this was just the beginning of the journey!

Now, a 21 years old Realtor with a Mtg payment and a business that is up and down was a scary place to be. As many other people in the industry know, it's feast or famine sometimes. I hated this feeling and knew how I could protect myself and as I always like to say become, “recession proof.”

I spent the next couple months getting permits and plans approved for an ADU (Accessory Dwelling Unit). This would turn my detached garage into a separate unit to rent out and begin the process of “House Hacking!” This was right before all the laws in California changed for looser guidelines regarding ADU’s, so unfortunately, I paid higher fees like impact fees and had to wait a little longer than today’s process. Regardless, I got approved after about 8-9 months and then the next chapter in this story began, what the heck do I do now?

I’m a year into living in this place, I just received my approved plans for my additional unit, but the problem of actually building the place has now arrived. Up to this point I had never managed any construction project, never looked at any building plans, barely ever been on a construction site, and never swung a hammer in my entire life. Eager to learn and full of grit, I approached my neighbor directly across the street who I’ve become friends with over the last year. You see my neighbor George is a semi-retired contractor with almost 40years in the trades and an absolute god-sent for me and this project.

George being the epitome of a neighbor agreed to the project at hand. A beautiful deal had fell into place, I would pay George his friendly hourly wage to teach and train my brother and I literally 20 steps from the comfort of his home. It was a win for everyone! I knew learning just about everything that goes into a new build will serve my real estate business and clients exceptionally well and set me up for more builds and opportunities in the future. In addition to paying for my brother (who’s way handier than me and is in the process of getting his contractor license) to learn and grow skills he could use in the future as well! Over the next ~9months of what free time we all had, with the help of George and my brother Lance, we would convert this detached 460sqft garage into a brand new, bitchen studio apartment.

Let’s get into some of the numbers! I attached a video below for reference of the build! The market value for a new 460sqft studio in my area (Thousand Oaks, CA) is roughly $1850-$2000/month (including all utilities.) All in, I paid just over $80k out of pocket for the build. There are a few things about that budget that need to be said. First off, like it is for a lot of builds, this $80k job was not the plan. A learning curve is very real, and I look at some of these extra costs mistakes as lessons that I paid for now and won’t be making on future builds. I made just about every mistake you could make, and I will definitely make way more mistakes throughout my years, but I just try to keep moving and learn from it all! Being a rental, I could have chosen more inexpensive options in certain departments, but I did not, maybe in future projects I will! Secondly, this took way more time than expected and gave me a serious appreciation for all the trades in construction, because none is easy and most take a serious amount of skill to execute. I know this doesn’t directly impact the amount spent on the project, although it does directly affect me due to the time it could be rented that is lost.

I am about to close on a cash out refinance from the equity built which will put a little bit of $$ in my pocket, take my rate down to an insane 2.65%, and give me a two-month break on payments for Jan/Feb 21’. Since this is my first time being a landlord and my tenant will be living in such close quarters, I anticipate hiccups and for that reasons and others I had decided to rent the studio to a family member to work out some unseen kinks of this type of rental. I know renting to family isn’t always ideal and I am giving it to my cousin for under market value at $1500/month, but this is my practice run at being a landlord and at the end of the day, it’s family and if I’m in a position to help my family out, that’s a cherry on top in my book. Nonetheless, I am still treating this very seriously as if it was not family.

So, $1500/month comes from the studio. In addition, I have my brother and close friend that live in the two other rooms in my main house for very inexpensive, $500/month each. So, this puts my total rental income to $2500/month. My mortgage, PITI, is $2,525/month. My total monthly expense for my house is $2,905/month with all utilities. This puts me at a cost of ~$405/month for the property. That would mean that I pay ~$4,860/year for the property, which is great! Although, with this refi allowing no payment for the month of Jan. + Feb, this year I will be at a gain for those two months.

This will offset the normal yearly cost for next year, 2021. 

$2,905 - $1,958 = $947 (Jan + Feb. Expense)

(One-month expense minus principal + interest payment)

We take $947 x 2 = $1,894 (both Jan/Feb. Cost)

$5000 - $1,894 = +$3,106

(Two months’ rent - Jan + Feb. Expense = Positive gain)

Jan/Feb = +$3,106

March through Dec. = -$4,050

2021 Yearly Cost = $944

2021 Monthly Cost = ~$78.67

This is a not a perfect number, as its not accounting for CapX, vacancies, taxes paid on income, or any benefits to owning real estate, etc. This entire situation has put me in a position to save more, invest more, relax more, whatever I choose. That to me is worth all the stress, anxiety, and scare of the last year of my life. If you made it this far, thank you for taking the time I hope you enjoyed! Thank you, bigger pockets, you have instilled these ideas in my brain for years and I eagerly look forward to the next one!

Here is the video link! 
ADU Snap Shot