How I'm living for free in my 20's!

What is Financial Independence? What are the opportunities it offers? These are some of the questions I’ve been asking myself over the last couple of years, moreso having recently graduated college and now working a full-time job as a Realtor.

After doing some research the definition I liked the most was the following. Financial Independence is achieved when one has enough passive income (from investments, passive businesses, real estate, etc.) to pay for one’s living expenses (car insurance, rent, phone service, etc) for the rest of your life without having to rely on a job.

Personally, the way I see it, Financial Independence gives me the freedom to work whenever I want, travel whenever I want, spend time with my family and essentially make my money work for me as opposed to me working for my money, how awesome is that?!

One of the most important things in the journey to financial independence is tracking your finances and managing a monthly budget. When I tracked my monthly expenses, I realized my highest expense was my rent payment. So I asked myself how I reduce or completely eliminate it?

After much research, I decided that the House Hacking Strategy would give me a head start to my financial independence journey in my 20's.

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How I found it…

Looking for my first house hack was very interesting, I’d find several homes I liked and would immediately go see them. Pictures CAN be deceiving, every time I’d go to a place I was disappointed to see that the house wasn’t as nice as I thought it would be. But didn’t give up and on November 14th, 2019 I set a goal to get a house by February 14th 2020.

I analyzed countless deals per week to the point that I would be able to instantly tell a good deal from a bad deal. Funny enough, the house I eventually bought wasn’t even on the MLS (Multiple Listing Services), a friend of mine, you might know him, Diego Corzo aka House Hacking Master, informed me that a builder representative had reached out to him about a 4bed/3.5bathroom house that was coming back on the market! Immediately after Diego informed me about this, I hopped on my car and drove to the home. Within 20 minutes of seeing the exact same floor plan (my home was just a plot of land at that time) I submitted my Earnest Money Deposit ($1000) and had the home under contract! That’s right… I put a home under contract with just $1000.

I remember the exact date because I couldn’t contain my excitement, February 10th 2020 was the day I took my first step towards Financial Independence!

The Home

The home I bought was a new-build, meaning that I was going to be the first person to live in it. New-Builds typically offer buyer incentives, they can range from paying closing costs, adding optional features such as stainless steel appliances or even upgrading some design features in your home. To get the incentives offered, buyers usually must work with the lender recommended by the builder as well as the title company chosen by the builder. I went with their preferred lender and saved $5,815 in closing costs. Closing costs are fees and expenses you pay when you close on your house, beyond the down payment.

Roommates

One of the biggest factors that has people debating whether they should house hack or not is the roommate situation, “What if I don’t find anybody, It’s impossible to get roomies”, and the list goes on and on. But where there’s a will there’s a way! There are around 100 people moving to Austin on a daily basis and most of these people don’t want to be paying an absurd amount for rent! House Hacking offers extremely competitive rates per room! Having said this, those competitive room rates won’t mean a thing if you can’t market your rooms correctly. I found my roommates by marketing my home online using Instagram and Facebook MarketPlace. By the time I moved into my home, I already had 2 roommates each paying $700 per room, my last roommate moved in 17 days later and is paying $750. Talk about affordable living in Austin !

My ads on FB MarketPlace consisted of the following:

1. - Description of my house
2. - Location & proximity to employers, shopping, major highways, etc.
3. - What I was looking for in a potential roommate
4. - About myself and best way to reach me
5. - Credit score requirements + Income Requirements (3 times the monthly rent)

My Numbers

Purchase Price: $286,000

Down Payment: $28,600 (10% Down – Conventional Loan)

Mortgage Payment: $1,850 (Principal & Interest + Property Taxes + Insurance)

Gross Monthly Income: $2,150 ( 2 Rooms rented for $700 another $750)

Monthly Expenses/ Vacancy: $75

Monthly Cash Flow: $2,150 – $1,850 – $75 = $225 + Living for free !

This means that I am making $225 a month in cash flow while living for free!

Essentially, cash flow is the monthly profit after paying the mortgage, maintenance, and vacancies.

The cool part… is that the cash flow of $225 paid for my cell phone bill and car insurance!

Now, you might say that $225 is not that sexy… but that is just one of the benefits of house hacking. Let me introduce you to another term that will explain why I love House Hacking: Net Worth Return of Investment (NWROI).

NWROI is a performance measurement used to evaluate or compare the amount of return you’ll get on a particular investment over a whole year.

The formula for calculating NWROI is: (Cash Flow + Rent Savings + Principal Loan Paydown + Appreciation) / Initial Investment.

The cash flow for my deal was $225 per month or $2,700 per year. Before buying this home, I was paying $850 per month for an apartment, ADIOS RENT PAYMENTS! Now as a house hacker, those rent savings amount to a staggering $10,200 per year! The principal paydown per month is around $500, per year that’s $6,000. Principal is the dollar amount you owe on your home. The appreciation on my home thus far is 2%, therefore $286,000 * 2% = $5,720, this means my home is now worth $291,720 according to the market value in Austin.

My net worth return on investment for my first year is:

$2,700 + $10,200 + $6,000 + $5,720 = $24,620 total net worth gained

$24,620 / Initial Investment ($28,600) = 86.08% net worth return on investment!

*And this doesn’t even include the tax benefits, which we will be explaining in a future post. *

That’s a staggering 86% return on investment. Essentially for every dollar invested, I got $0.86 back in a year! THE STOCK MARKET’S HISTORICAL RETURN AVERAGES 10% ANNUALLY! ! ! ! This means that if I were to invest $100 in a stock, historical returns would indicate I get $0.10 for every dollar invested, bye bye stocks!

Not bad for my first real estate deal in Austin, TX!

Cheers to your house hacking success!