Planning My First House Hack (Advice/Help)

[Blake Isom]

Setting the Scene - In pursuit of a loan from my parents for house hacking

I have been listening to the BiggerPockets podcast and learning about real estate investing for over a year now. I just finished reading the Bigger Pockets published book, “Set For Life” by Scott Trench. I have taken his, as well as many others, advice to heart and hope to pursue a house hack when I graduate from college with an MBA in May of 2018.

Fortunately, I have two loving and very well-off parents who have been able to help me pay for college and some (a lot) of living expenses including rent and car and health insurance. I also live with my girlfriend who I split most of the remaining bills with.

I have the opportunity to work for my father’s company when I graduate and rather than renting an apartment until I can save up $25,000 (advice given in Scott Trench’s book), I hope to house hack immediately upon graduation. I hope to secure a loan from my parents and my proposal to them is written below.

Please, as I have asked my parents to do, identify any gaps in my plan. I’m confident there are several, but I am looking for advice. I am new to real estate and have zero experience but I hope to get started very soon.

Thanks, BiggerPockets members!

Plan A: No Loan from Parents
Month	Salary (After-Tax)	Rent	Personal Expenses	Savings
1	$2,500.00	$750.00	$1,250.00	$500.00
2	$2,500.00	$750.00	$1,250.00	$500.00
3	$2,500.00	$750.00	$1,250.00	$500.00
4	$2,500.00	$750.00	$1,250.00	$500.00
5	$2,500.00	$750.00	$1,250.00	$500.00
6	$2,500.00	$750.00	$1,250.00	$500.00
7	$2,500.00	$750.00	$1,250.00	$500.00
8	$2,500.00	$750.00	$1,250.00	$500.00
9	$2,500.00	$750.00	$1,250.00	$500.00
10	$2,500.00	$750.00	$1,250.00	$500.00
11	$2,500.00	$750.00	$1,250.00	$500.00
12	$2,500.00	$750.00	$1,250.00	$500.00
Yearly Total	$30,000.00	$9,000.00	$15,000.00	$6,000.00

Plan B: Loan from Parents
Month	Salary (After-Tax)	Rental Income	Mortgage Expense	Personal Expenses	Savings
1	$2,500.00	$750.00	$800.00	$1,250.00	$1,200.00
2	$2,500.00	$750.00	$800.00	$1,250.00	$1,200.00
3	$2,500.00	$750.00	$800.00	$1,250.00	$1,200.00
4	$2,500.00	$750.00	$800.00	$1,250.00	$1,200.00
5	$2,500.00	$750.00	$800.00	$1,250.00	$1,200.00
6	$2,500.00	$750.00	$800.00	$1,250.00	$1,200.00
7	$2,500.00	$750.00	$800.00	$1,250.00	$1,200.00
8	$2,500.00	$750.00	$800.00	$1,250.00	$1,200.00
9	$2,500.00	$750.00	$800.00	$1,250.00	$1,200.00
10	$2,500.00	$750.00	$800.00	$1,250.00	$1,200.00
11	$2,500.00	$750.00	$800.00	$1,250.00	$1,200.00
12	$2,500.00	$750.00	$800.00	$1,250.00	$1,200.00
Yearly Total	$30,000.00	$9,000.00	$9,600.00	$15,000.00	$14,400.00

Proposal to Parents

My goal is to save $25,000 and then start plan B, but I would much rather start plan B sooner. Plan B involves "house hacking," which means buying a duplex, triplex, or multiplex and renting out the other unit(s) you don't live in. If I were to do this on my own (plan A), I would be renting for $750 a month (Knoxville's average rents) and would be capable of saving around $6,000 a year on a $40,000 salary (assumption #1). Using plan A, it would take me roughly 4 years to save $25,000 dollars (based on a savings rate of $6,000 per year). If I could use plan B, my savings rate would be much higher, because the mortgage on the property would be paid/mostly paid by the tenants. Therefore, I could repay parents in roughly 2 years (based on saving $14,400 a year). This would save 2 years of time on saving $25,000 and would save $36,000 in rent payments over 4 years.

Note: Many of these numbers are based on several assumptions.

Assumption #1: Salary of $40,000 a year.

Assumption #2: Rent $750. This is the current average rent for Knoxville, TN.

Assumption #3: Mortgage $800. I do not want to buy an expensive property. Hopefully under $150,000, maybe a little more. Depending on down payment - mortgage could be higher but rent income could possibly be higher too.

Assumption #4: My expenses $1,250. I currently spend around $700 a month on my expenses. I do realize my current expenses do not include car and health insurance, car maintenance and repair, electric bills/water bills, internet, food when my parents buy, and more expected expenses based on no longer being a cheap college student. Having said this, I have increased my expenses assumption by $550.

Assumption #5: Dad has $25,000 cash to loan. Assumption based on his LARGE salary.

Assumption #6: Dad can refrain from helping me on a mortgage/loan. This money needs to be in cash to be worthwhile. Dad taking out a loan for the $25,000 defeats the purpose of the plan.

Assumption #7: A legal contract of repayment will be signed if the money is loaned, because I MUST repay this money for personal satisfaction purposes. (Maybe not to the extreme of a legal contract, but I must repay).

I have not included any aid from girlfriend and the salary she may be making or any extra money I could make if I were to pursue real estate sales on the side. This leaves me some wiggle room in my assumptions and numbers.

I also did not include any maintenance costs on the property. These expenses would be secured by the surplus on the $25,000 that was not spent on the down payment plus extra savings I currently have.

So, basically this is a proposal for a $25,000 loan. Please identify any gaps in my plan. There are likely several, I only thought of this plan last night in bed.

Even if the numbers are off a little, saving $36,000 on paying rent and paying the saved money directly to parents would be huge.

Your loving son,

Blake

p.s. I can better explain numbers if you don't understand. It also may seem too good to be true and please let me know if it does, however I have been listening to podcasts and I've read a couple of books on stuff like this. I think I understand the idea, for the most part, but I will be learning more and making adjustments.