House Hacking 101:Build Wealth w/ House Hacking In College Station TX

House hacking is the most powerful tool for wealth creation. It’s so effective because it combines the benefits of homeownership—already one of the best ways to build wealth in America thanks to tax benefits and favorable loan options—with the added bonus of cash flow. Essentially, house hacking supercharges your financial growth!

So, what exactly is house hacking? As I define it, house hacking is when you generate income from your primary residence. Essentially, you rent out some portion of your home. This can take many forms, such as:

• - Buying a duplex, triplex, or quadplex, living in one unit, and renting out the others.
• - Purchasing a single-family home and renting out the bedrooms.
• - Acquiring a property with an ADU (Accessory Dwelling Unit), living in the house, and renting out the ADU—or better yet, living in the ADU and renting out the house.
• - Renting out your home on Airbnb (I’m a big fan of this for gameday weekends in BCS).
• - Renting out garage space, a pool, parking spots, etc.

The list goes on and on, limited only by your imagination and your willingness to sacrifice a bit of comfort and privacy.

Why House Hacking Works

The goal of house hacking isn’t to find the perfect first rental property. Instead, it’s about lowering your living expenses. Every dollar saved is a dollar earned, making the ROI (Return on Investment) huge!

Key advantages of house hacking include:

• 1. Low-Cost Financing House hacking allows you to access low down payment options, low interest rates, and 30-year amortization periods, just like a regular primary residence. This makes it easier to acquire a property with minimal upfront capital. It’s an accessible strategy, even for beginners, to start building wealth through real estate.
• 2. Tax Benefits Homeownership offers tax perks, and house hacking amplifies these by allowing you to deduct expenses related to the rented portion of your property. This includes deductions for mortgage interest, property taxes, and even a portion of your utilities and maintenance. These tax benefits help you keep more money in your pocket while your property appreciates.
• 3. Scalability House hacking is a repeatable strategy that lets you grow your real estate portfolio with each move. As you acquire new properties, your previous homes become income-generating rentals. This gradual accumulation of assets helps build long-term wealth and financial independence.
• 4. Lowered Living Expenses By renting out part of your home, house hacking significantly reduces your monthly housing costs, sometimes even eliminating them. Every dollar saved can be invested elsewhere, accelerating your wealth-building efforts. This increased cash flow provides financial flexibility and security.
• 5. Landlording with Training Wheels Managing a tenant who lives next door or in your own home is much easier than managing a tenant from a distance. House hacking gives you a hands-on introduction to landlording, helping you develop essential skills in a low-risk environment. It’s a great way to learn the ropes of property management before expanding to larger, more complex investments.
• 6. Accelerated Wealth Building House hacking combines appreciation, principal paydown, and cash flow to rapidly build wealth. Your tenants help pay off your mortgage, while the property's value increases over time. This strategy not only lowers your current living expenses but also sets the stage for long-term financial growth.

Potential Drawbacks

I hesitate to mention these, but here are a few:

• Shared space: The biggest hurdle for most people is the idea of sharing their home with a stranger. Even those currently living in apartments may struggle with the concept of buying a duplex and renting out a unit. But as the saying goes, you need to change your mindset to grow!
• Costs: Some options, like buying a fourplex, can be more expensive. For example, fourplexes in Bryan/College Station are about $100k more than the median home price.
• Management: There’s some level of management involved, but if you’re reading this, you’re probably interested in becoming a landlord anyway.

Notice I didn’t say you have to downsize to a smaller home? You can have your dream home and house hack it too! We rent a room in our 2,200 sqft home on Airbnb and make $600-800 per month. There are even $1 million dollar homes in the nicest neighborhoods that have garage apartments or poolhouses. Sounds like a dream home to me!

A Real-World Example in College Station, TX

Let’s take a real-world example: 2504 Hickory Dr, a duplex currently for sale. Each side is 1,050 square feet with 3 bedrooms and 2 baths—an excellent option for most people. It’s currently listed for $330,000.

Assuming you use an FHA loan (3.5% down, 6% interest rate), your down payment plus closing costs would be

around $20,000, and your monthly payment would be $2,800. If you rented out one side, you’d lower that payment to $1,400. If you rented the two spare bedrooms in your side, your monthly payment would drop to just $500.

With a 4% appreciation rate, this house would increase in value by $13,200 each year. Your principal paydown on the loan would be $3,800.

So, you’d own a home worth $330,000, live with some great roommates, and have a fantastic neighbor who pays you every month—meaning you only pay $500 out of pocket, while your wealth grows by $17,000 a year!

Comparing to the Traditional Path 

To drive the point home, let’s compare tis to a more traditional approach. Take 511 Camp Ct, a similar-sized home in College Station listed for $265,000. Most people would consider this a great first home. But remember, most people aren’t real estate investors. This house would cost $15,000 to purchase with a monthly payment of $2,300.

The difference in monthly living expenses between the two scenarios is $1,800—or $21,600 per year!

We already said that a dollar saved is a dollar earned. By house hacking, you save $21,600 per year on an initial investment of $20,000, resulting in a 108% return on your money!

Final Thoughts

House hacking allows you to lower your expenses today, but as a long-term strategy, it also enables you to build a rental portfolio early in life. That Hickory duplex would make a great addition to anyone’s portfolio.

The barrier to entry for house hacking compared to buying a traditional investment property is significant—3.5% down versus 20% down, potentially saving you tens of thousands of dollars.

Lowered monthly expenses free you up to live a bigger life—or, better yet, to save up for your next house hack!