Congratulations!
You made it!
You made it to the second-ever edition of Everything House Hacking.
Now let’s get down to business.
Lesson
Home: Asset or Liability?
We’ve all heard it before from a homeowner, and maybe even ourselves… “My home is my greatest asset.” Let’s take “greatest” off the table. Is a home even an asset? Some of the biggest names in real estate (Robert Kiyosaki and Grant Cardone, for example) will argue that a primary residence actually falls on the liability side of a person’s balance sheet.
Let’s take a look at their reasoning for a home being a liability with an example of purchasing a single-family residence that you plan on living in for 30 years:
Assume you have $10,000 to invest, the perfect 5% downpayment on a $200,000 single family home. This home appreciates to $485,000 over 30 years (on the high end) — not bad. But…
What about your PITI? Over the past three decades you have paid $190,000 toward principal to pay down the loan, $98,387.71 for interest and roughly $72,000 for taxes and insurance, $370,387 total. We also have to assume you made some repairs and maintenance for the duration of ownership and a minimum of $50,000 was needed. All in you have made ~$65,000.
That’s a lot of work and time for $65,000… plus, that’s not the end of the story.
This $10,000 could have instead been invested in something else, such as the stock market.
Let’s figure you have an extra $250 a month to invest from the difference in rent and what your your mortgage would have been. Over that same 30 year period you’ve invested just under $100,000 total and realized 9% average annual returns, resulting in $505,000 in gains for a total investment balance of $605,000.
Big Picture: We hope you’ve spotted the opportunity cost of owning a primary residence. Luckily for our community, we realize that we can flip the script and utilize properties as assets to generate cash flow via House Hacking strategies.
Deal Analysis
Want a deal you’re looking at to be analyzed, or want feedback on your analysis? Send it to support@everythinghousehacking.com
Here we have a potentially House-Hackable property in the heart of the state that claims itself to be “America’s Dairyland.”
This property should bring in $2,388 per unit per Rentometer, and assuming that we live in the other unit without any roommates, this won’t cover our mortgage of $2,615. With a deeper look at variables that we should prepare for, we should account for an extra $454 of reserves bringing us to a deficit of $681 on living expenses.
This property may be suitable depending on the goal associated with the investment. Ultimately, you're only paying $681 per month to live while gaining equity. Plus, if you don't plan on being here for a long time (FHA requires a one-year minimum stay), you may rent out both units and generate some cash flow.
Related News
Blockbuster: Housing Construction in 3D
We at EHH are fans of the Lion King. Though you can’t beat the original, the revamped 3D version was highly stimulating. Tech has evolved in a massive way since the 1st release, and a new path is being paved for home construction… 3D Printing.
Housing shortages have been a growing problem in recent years, worsened by supply chain delays and a labor scarcity. In the United States alone, it is estimated that there is a shortfall of 4 million dwellings.
3D printing may be the solution.
Some machines have the capability to form a foundation and walls of a home in less than 24 hours. Even Extreme Makeover Home Edition couldn’t keep up with that rate.
Another kicker: these homes can sometimes be insanely cheap. One of the first 3D printed houses definitely fell into the “tiny home” category at just 350 sq feet, but it only cost ~ $10,000 to print! Now 3D printing companies estimate a 1,000 sq foot home can be built for the same price through a little R&D.
Is the future here?: Drones and robots could replace hammers and nails sooner than expected. Though 3D home printing companies, like ICON, are in the early stages of its business, it is already picking up steam. In fact, it has already completed projects like an army barracks in Texas and a small community in Mexico.
Bonus: Check out this video of a 3D printed home walkthrough (Would you house hack this? I would…)
Interesting Stuff
Book: The Millionaire Next Door
This classic may not be packed with real estate investment knowledge, but there are plenty of examples showing how “average” people use discipline and different perspectives to become financially independent.
Quote: “You miss 100% of the shots you don’t take” —Wayne Gretzky —Michael Scott
Video: Turning your basement into an extra unit!
This timelapse shows how you can turn your single-family property into a multi-family property. Of course, be sure to follow all laws and regulations for your area before taking on a project like this.
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