My house hacking experience

[Stewart Olney]

So @Brandon Turner has talked about house hacking sometimes, which is renting out bedrooms in your house or living in a 2-4 plex while renting out the other units. I realized that is what I had been doing when I first stumbled upon bigger pockets and read some of his posts. I didn't realize it until January of this year. I had been doing it of my own accord without any outside education in real estate.

First I will give you some background. In 2011 I got accepted to pharmacy school at Wayne State University, and needed to find some housing closer to school to avoid a 2 hour commute. I decided I would rather buy a house than rent an apartment. (rents ran 800/month in midtown Detroit near WSU's campus, probably more now. One of my classmates bought a condo near campus and did the house hacking thing too, but saw it appreciate from $70 K (2011) to $200 K today (2015), but that is a whole other story.)

I had originally thought I would buy a 3-plex to house hack with in Hamtramck (Traditionally a polish city surrounded on all sides by Detroit). I did not like the quality of the neighborhood, so I moved my search to the cities of Grosse Pointe, Harper Woods, and St. Clair Shores. All these cities border Detroit, but have maintained high quality neighborhoods. Grosse Pointe is the most affluent and desirable, with housing price to match. I settled on a 3/1 1100 sq ft bungalow in Harper Woods which got Grosse Pointe Schools (Very desirable school district).

In order to help pay my living expenses, I decided to rent out the spare bedrooms in my house. I rented them both for $450 each. In 4 years, I have been though several tenants. I originally advertised on craigslist, but have since started using Airbnb. Craigslist tenants tend to be longer term (several months), and airbnb tenants generally stay from 1 night up to 10 weeks. The reason I moved to airbnb is because you get higher quality tenants. They are mostly professionals and students coming into the area for an internship, rotation (medical students, PA students, other healthcare professions), moving to the area, or are here on buisness. Craigslist tenants tend to be lower income and have a propensity for not paying rent. (Probably because I didn't know how to screen well back then).

I have had to do two evictions, all because I made mistakes. One person I let move in after paying $250 with promises to pay the $675 security deposit and $250 rent balance the next month. Long story short, he never paid anything after that and I had to live with him in my house for two months while the eviction proceedings went on. The other person was a lawyer who never paid his rent on time, and eventually convinced me to use his security deposit to pay for a month of rent. Eventually, I had to evict him too.

Last year, I spent $300 to put up a wall in our basement, and made a new bedroom for my wife and me down there. We now rent out 3 bedrooms in our house and make ~$1200-1500 a month from them. Our expenses tend to be about that same amount if you account for mortgage, taxes, insurance, capex, maintenance,  internet, energy, and water bills.

Our future plans are to purchase a multi-unit property (while keeping our current house with the same arrangement), move into one of the units, and rent the rest of the units out by bedroom rather than unit. We believe we can squeeze more rent out that way, with the downside of requiring more intensive management.