Caption transcript. This text is pulled from YouTube captions and may contain minor wording errors.
[00:00] House hockey in Tampa is one of the best ways to get started in real estate on a normal or even low salary. It's not a get- quick rich play, but nothing in real estate is. So, it's a steady way to lower your housing costs, build equity, and learn the business while you live in the property.
[00:17] Subscribe. Let's define what house hacking is. House hacking means you live in the home as your primary residence and you rent out the extra space. So that could be another unit in a duplex, triplex or quadplex. Or it could be spare bedrooms in a single family house. Your rent income will help offset the
[00:34] mortgage, the taxes, the insurance, and the utilities. Here's the plan for today. We'll compare two paths, the multif family house hacking and the single family room hacking. The latter one hasn't gotten much attention, but uh it is probably the best way if you're willing to sacrifice. We're going to
[00:51] cover loans, Florida homesteadic uh benefits, and how to use sweat equity on a distressed home. Um basic operations and risks. Let's start with the most important step. Uh first, pick your monthly out-of- pocket target before you ever shop for a home. And say this to yourself. You know, if I want my housing
[01:10] cost to be no more than 12 or $1,300, how much does my uh price point, like what am I looking for on the price point? How big can I afford? That target dictates everything else, how much you want your monthly to be. And from there, we can reverse engineer everything. You can ask a lender for a simple pity
[01:26] table, which is, you know, principal, interest, taxes, and insurance. Uh, or go to my website at dylancook.com/calcs to mess around with these numbers in real time. And be sure to include realistic taxes and insurance for Tampa. Uh, I think both are stabilizing quite a bit and they aren't increasing
[01:44] drastically as they have the past few years, but it's if you're coming from out of state, it is maybe still higher than what you're used to. For multifamily, estimate the rent um, for each extra unit using conservative comps. So, don't use comps from a house nearby. use comps from a duplex nearby,
[02:04] another multif family unit, because those those comps I should make a whole video about comps, by the way, because you can't compare like Airbnb comps with long-term comps, obviously, but you also can't compare single family with duplex comps, even if they're the same square footage, because
[02:21] there are things like privacy that you're leaving out and other features and amenities that a house has that a duplex does not. Anyway, for room hacking, estimate each bedroom's rent and understand that utilities will be included in the rent payments. Unless you do some sort of, you know, alternate
[02:37] structure, but simply one payment for everything included is usually the best and simplest way for room hacking. Your simple formula is this. It's out of pocket equals pity minus the rent you'll actually collect plus any shared utilities or maintenance maintenance you plan to cover. So play around with the
[02:59] price point, the number of units, and um the the number of of rentable rooms until I think the math lands at uh at or under your target. Here's an example of a duplex I want to share with you. If your target is $1,300 a month and that's where you want your your out-ofpocket monthly to be, maybe you're paying that
[03:18] in rent right now and you want to own and pay that and you're looking at a $450,000 duplex and it comes back at a pity of around $3,200. And keep in mind, we're not really factoring in uh like reserves here or some of these other like property management fees. Maybe you're going to manage it yourself, so
[03:35] you can exclude that anyway. But if it comes back at $ 3,200 per month and you're paying $1,300 out of pocket, you need about $1,900 of reliable rent from the other unit to hit your goal. And that's assuming that you will be self-managing again and holding zero reserves. So if conservative rent is
[03:54] closer to $1,800 per month, you're close, but you're not quite there. And that tells you to either find a lower price, improve the income with light renovations, maybe add a paid parking spot in the garage or uh laundry or storage or something, or look at a triplex or quad where you have more
[04:13] doors to spread the cost. And if you're consistently coming in short, the hard truth, the reality may be that the market is telling you to just adjust your expectations down a little bit. And so here's an idea for a simple room hack. If your expectations are a little bit um falling short on the on the on
[04:32] the multif family side, let's say you're looking at a $400,000 four bed, two bath and it comes back with a $2,800 pity. You live in one room and you rent out the other three and if conservative room rents are $700 each, which probably very realistic, maybe even a little bit more, that's $2,100 of
[04:54] income. And so you can sub subtract a buffer for utilities or cleaning and all that and then say $150 per month and your out of pocket lands at about $850. Room hacking almost always reaches a lower monthly cost if you're willing to manage roommates. And this is where you decide the amount of discomfort you're
[05:15] willing to take for the amount of reward you'll receive. So now let's pick your path. Path A is multif family. It's a a duplex, a triplex, or a quad. The pros, um, you have more privacy. There's separate, uh, doors and separate leases, and I think boundaries are just easier. Um, obviously they don't have to know
[05:34] that you're the owner. You can go buy an alias. Bookkeeping can be cleaner, and it scales well when you move out. Uh, you can hire a property manager to take over, and it's very traditional. The cons, you're going to have a higher purchase price. there's limited inventory and for three to four units
[05:52] um like a triplex or a quadplex certain loan programs have extra rules. This path fits if you want a clearer line between your space and your tenant space. You want more privacy, maybe you're married or you have kids and room renting just is not even feasible. Like it's not feasible at all. Totally get
[06:11] that. Path B though is a single family room hacking. So the pros for that is there's more inventory. There's a lot more single family homes than there are multif family in the area like by like exponentially. There's uh lower price points. There's uh strong rent per square foot and it's
[06:28] a very friendly entry point if your salary is modest. The cons though, it's more hands-on and you're going to share common areas and and you really are going to need tight house rules. You're going to have to come up with those. Use chat GBT to figure out the best way to put that together. I think this path
[06:45] fits if you are willing to live with people and in order to drive your cost down really fast. So, let's talk about loan options and the benefits of of a primary residence in the first place. Why house hacking? One of the benefits really is the when it comes to loans and the mortgage. I recommend FHA for multif
[07:04] family because now you can do the 5% down. You will still be paying PMI, but you know, it is what it is in order to get the 5% down. But first-time home buyer loans for single family room hacking, it really is maybe some of the most competitive loans out there. Um, they are extremely competitive and they
[07:23] don't force you to pay, many of them don't, I shouldn't say cuz I'm not a not a lender, but many of them don't force you to pay PMI or private mortgage insurance for just 3% down. The catch, they don't work on multif family properties at all. Lenders may count a portion of projected rental income
[07:40] towards your your qualifying ratios. Ask exactly how they'll treat your unit income or room income for underwriting because that can help boost your your qualification when you're looking to to buy a house. Remember, there's that 3 to four unit rule, the self-sufficiency test. So, if you're buying three like a
[07:54] triplex or a quadplex, the property's income has to meet their formula. So, uh know this early so you don't get surprised. Because this is Florida, primary ownership can also bring tax benefits. If if you homestead the uh portion of the of the property you occupy, you can
[08:14] get a property tax reduction and limits on future assessed value increases. So, what does that mean? That means that if you occupy if you occupy one unit out of a quadplex, you'll get the homestead exemption applied to 25% of your tax base, assuming that each unit is um equal in size. So, if you have a 2,000
[08:32] foot quadplex and each of the units is what is that 500 ft, you will get 25% of your tax base reduced by the homestead exemption. But room hacking with a single family would you would still get the full 100% because they don't the way they see it is it's one house you're living there and that's that. I think
[08:52] prioritizing location for what works best for you really location for both of them. But you really want to maximize the amount of income you can get on a on a on a multif family because they're already going to be tougher to to tougher compared to the single family. For room hacks, look for four to five
[09:11] bedrooms. I think at a minimum and at least two baths is important, especially if you want one bath to be your personal bathroom. You're going to need two to three baths. Um, so there's enough for the remaining rooms. Be aware of HOA rules as well. If you decide to move out and continue to rent the rooms, they may
[09:27] not like that you're not living there as the owner. And you know, just be aware of that. I think one of the most important things when it comes to buying your first property is is sweat equity. And when you're first starting out, this is good. A
[09:43] distressed home can be your friend if the distress is mostly cosmetic. You know, think of paint, uh, flooring, simple kitchen and bath updates, um, lighting and and landscaping. Landscaping is a big one that I think is just very inexpensive but laborheavy. Be more cautious with more be very cautious
[10:04] with major structural issues. You know, if you see quarterinch cracks, step cracks through the house on the outside or inside, uh, cast iron or galvanized drains to an extent. Cast iron can be okay. Galvanized, you know, is a little bit more scarier. And you really want to do things like renovate your bathrooms
[10:22] yourself or fix some rotted, you know, wood rotted planks outside. Let me tell you some of the things that I've done to increase the value of my first home. And it's nothing special, but it gives you an idea of what you can do to increase value fast and over time. Uh, we did a full bathroom renovation. Um, I did pay
[10:38] for a kitchen uh and another bathroom to be done by somebody else, but I got a good deal on it. Um, I did front porch pavers with my wife and a dad added basically added a front walkway with pavers. Uh, 200 ft uh back porch addition with pavers. Um, I added ceiling fans to many rooms and the back
[10:58] porch as well. So, it's it's everything's getting more air flow. And uh um we tore out a few walls in the kitchen and separating the kitchen in the living room and the dining room actually. And basically we opened up the floor plan quite a bit. We expanded the kitchen at the same time and we opened
[11:16] up the drop ceiling. If you're familiar with Florida, a lot of the kitchens have these for some reason they thought it was cool to drop the ceiling to make it cozier in the kitchen. Uh we didn't like that. We took it out, put new light fixtures throughout the house as well. And these things weren't even done in
[11:31] one year, but you know, we took on new projects every couple of months, and it really adds up over time. I've talked about this quite a bit. In Florida, insurance is a big factor. There's the roof age, window ratings, and uh certain electrical and plumbing systems can raise your premium. I always get
[11:47] insurance quotes during your inspection period. If you need upgrades, there are renovation loans like the FHA 203k, uh conventional home style that can roll the cost of rehabs into the mortgage. Let's move on to the operations side. So once you've selected and closed on your first property for multifamilies, try to
[12:05] separate utilities when you can. Hopefully the property was already separated when you bought it, but if not, you can use a fair ratio billing system or flat utility fee. It's not always feasible to get a second meter from the the city or county or whoever is responsible for that. Sometimes just
[12:20] setting up a, you know, uh, a static fee each month for utilities is a little bit simpler and clearer. Use a clear and legitimate lease and document movements with photos, especially if you're managing yourself. If you're hiring a property manager, they'll take care of all that for you. I do recommend that.
[12:38] I've been in property management for over seven years. Um, not the last seven, but throughout my lifetime. And you know, this is always they're very they're going to be much more detailed than you would ever be because they're going to know the tricks and the details that they've missed in the past that
[12:53] they don't want to miss again that you just don't know about. So for room hacks though, put each roommate, this is a little bit simpler on the move in and move outside because we're just talking about one room and you're living, you know, throughout them. But for room hacks, put each roommate on a room
[13:06] lease. And I don't have one for you. If you really want to hire an attorney, then you can you can do that and talk to them about it. Wrap this up. You know, none of this is magic. Um, expect work. Expect some vacancy and the occasional rough month. But if you keep 3 to 6 months of total expenses and reserves,
[13:25] you're going to be all right. Underwrite conservatively. I help do that with all my clients. Use real rents from recent comps and make sure they are actual comps and they're not a different entirely different type of property. uh use realistic insurance and taxes. You can get taxes from property
[13:41] appraisers websites. Just Google your county plus tax appraiser or uh your county plus like Hillsboro tax estimator or Pasco Tax Estimator um insurance. Get in touch with insurance agent and you'll be able to have quotes, you know, within your inspection period. So, you're not at risk of losing, you know, earnest
[14:01] money later on when you realize, oh no, the insurance is $5,000 a year more than I thought. But I can't afford this. Remember to move forward in Tampa, pick your monthly target. Play around with the calculators. If you want my calculator to help you with calculating
[14:16] pity and additional expenses like reserves and the usage of a heliloc, go to dillancook.com/calcs. It's going to be in the description below as well. So, listen, house hacking won't make you rich overnight. Um, don't expect that, but it can lower your housing costs right away. And hands
[14:34] down, it's the best. It's the best way to start investing in real estate with a low salary or a modest one. It'll teach you how rentals work and grow your equity while you live there. Um, start with the payment you can live with, reverse engineer the deal, and take the first step. If you've learned something
[14:50] or enjoy this, please leave a comment down below to tell me and like and subscribe. Thanks.
