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How To House Hack Buying Your First Home
First Time Home Buyer Hacks To Pay Less On A Mortgage Payment
Have you ever heard of house hacking? That’s what people are calling some old-school techniques being used to lower your mortgage payments so that you can afford a home. Let’s see if this type of purchase can work for you.—
What’s happening, everybody? Welcome to another edition of the show. We’re going to hit yet another topic with all the renters out there. A lot of you folks out there hit me up saying, “My rent sucks and my landlord sucks. Why don’t I buy a place, live in my part of it and then I become the landlord?” Let’s find out if this is a good idea for you. On paper, for some folks, this looks like a killer idea. I get that but I want to tell you if you’re looking for a shortcut to becoming a homeowner, if it was that easy, simple and the numbers worked out perfect, then everybody would be doing it. Don’t bomb out. Just because I dropped a truth bomb right at the beginning doesn’t mean that it’s a bad idea for you. This could still be a great idea for you. There’s a multitude of different ways that you can do it. The term house hacking is new but all of these tactics people have been using for years. There’s a lot of data out there and different ways you can do it. What I’m going to do is cover two of the most commonly used ways that buyers become hackers. The reason people do that is because they’re looking to build wealth when buying their very first piece of property, something I can totally get behind. The two big ways are buying a home and then being able to rent out part of the living space in your home or buying a duplex, a triplex or a fourplex, what we call a multiunit home, living in one unit and then renting out the others. First, before I go any further, I have to dispel an idea that many house hackers and new investors ask me about when it comes to buying their first home. Lots of times I ended up getting a call from a super excited first-time homebuyer. They’re totally stoked about buying investment properties first before they own a home themselves. If you're trying to build something, there are different ways that you can do it. Click To Tweet They get to a certain age. Doing their research, they hear about all the big baller billionaires who have enough money to buy their own rockets and shoot themselves into space. They find out when they’re reading that all these rich folks, all those big zillionaires out there and some regular old rich people, most of them, their average portfolio shows 30% is invested in some real estate. They figure, “Wealthy people make money in real estate. I want to do that. I want to start soon.” I get it. These buyers call me and they’re thinking about buying property for the first time in their lives. They do the research. They listen to a podcast on gaining wealth, read an article or two or have a friend that killed it with a rental property and decide they want to emulate that. Their financial advisor or an entrepreneur uncle told him that they’re going to get killed on taxes because they don’t own property. They decide it’s a great time for them to buy. I totally get it. I agree. I get the call and they figure out, “What’s going to be cheaper for me to buy an investment property first. I’ll go ahead and do that?” These potential buyers sometimes ask me how to do that before they’ve got a home for themselves. I’ve got one quick take on that. There are some successful entrepreneurs out there that have classes, seminars and techniques or ideas and they preach not to buy your own home. If you’re following that, cool but I want to make sure you understand that whole big picture concept. Some of these things that these entrepreneurs are saying out there, I totally agree with. It makes great sense. If you’re trying to build something, there are different ways that you can do it. Some people say, “Pay off your whole house right away.” Some people say, “Always keep a mortgage because it’s a leveraged investment.” Some of these people reached not to buy your home first but to rent. You have to get the whole picture. If you listen close, they’re saying that you don’t buy a house but what you should be doing is living poor. You should rent dirt cheap and use all the extra monthly cash that you have to fund your investments or more often, your own entrepreneurial ventures. See, that makes sense. If you’ve done the research and you realized that the capital that you have that you can keep every month is better spent building whatever it is that you want to build that will eventually become a successful money stream for you. All you need is that upfront capital. You can get more of that by renting super cheap. That’ll help fund your idea faster and get you to that wealthier place later on. That’s a good plan. Make sure that you understand the entire rest of that story in that recommendation. It’s a big choice and a big life change. House hacking has a little bit of some choices too but let me talk to you if you decide to buy an investment property first before you buy your own home. This is a big choice for people that are serious. They hustle, got three jobs and live at home for free or are in a two-bedroom apartment with eight other people eating whatever is on sale at Costco. In the wee hours of the night, they’re staying up after their three jobs, creating all that exciting stuff, whatever that thing is that’s going to eventually pay off. They accept this sacrifice. If you’ve got the hustle, go for it. If you want to buy an investment property before you buy your place, check yourself and your numbers. If you’re living comfortably and you’re paying normal rent, you want to stay there and that’s what you want to continue to do. Usually, the numbers favor buying your own home first and having that asset be the beginning of building your financial security and your wealth. It’s an asset to living that puts your monthly rent payment towards a historically appreciating asset instead of buying an investment property first while you’re still paying rent for your roof. Don’t hate, it’s just math. I’m going to say it and it’s going to sound lousy but I didn’t just start reading about this. I have been following this for a long time. I had my big ideas in 2003. That’s when I started reading books, figuring this out and buying all my investment property. I can tell you from experience that things went well and not so well for me. I ended up doing this and teaching people. The one thing I’ve seen in my trials and tribulations, as well as successes and my client’s successes, is if you don’t own a property, don’t be fooled and lured into the idea of a $300 a month positive cashflow on an investment property when you’re still paying $1,400 in a month in your own rent that doesn’t improve your net worth in any way. On to the house hack idea, which is different from what I was talking about, that’s buying the traditional investment property. A house hack is something that you live in. The first house hack is simple. There’s still that lifestyle choice that you need to accept. You go out and get approved for your max loan approval. You buy a home at that price and that monthly payment. What you do is you live below your means by renting part of that house and saving more money every month.

Unicorn Realtor
Step one, get yourself a local unicorn realtor. If you don’t know what a unicorn realtor is, read other episodes. Get your local unicorn realtor to get you a local unicorn broker. That’s step one.Apply For A Loan
Step two, apply for a loan to buy your own home, all on your own without the co-signer. Find out what you qualify for on your own.Put The Numbers On Paper
Step three, get those numbers on paper or put them in a file or electronic file. Get the down payment, the purchase price and your monthly payment on that price. Go old school, print it out, save it, whatever you want to do.Go Back To The Unicorn Realtor
Step four, go back to the unicorn realtor to give you all the sold homes in your area for that price, take the pictures of those homes. Something shows what those homes look like and what they could be. Print out or save those pictures to a file.Get A List Of Homes
Step five, get your unicorn realtor to get you a list of more expensive homes, bigger homes that you could purchase that home and rent a room. Figure out what the rent might be. For this example, let’s say it’s $600. Your number could be totally different. If you got that rent and paid it towards a larger mortgage, the mortgage that your co-signers would help you get, you could pay for about $115,000 more home. If you qualify for that, you could do it on your own and have that guy or gal come in and pay you but you need the co-signer. Have the unicorn, get a list of more expensive homes where you could rent a room, figure out how much rent you could get for it and then that rent have your unicorn add that to the price of your approval to a new approval and find homes that fit that.RET Number
Step six, ask your realtor or a mortgage broker to help you come up with that rent number if you don’t know how much your friends would pay and most importantly, how much more in the home purchase that you’re going to need.Print Out The Homes
Step seven, print out all those homes. In my example, they were $115,000 more but whatever your number is, the more qualified home prices are with that rent, print out those homes with the pictures. Rent a cheap home and use all the extra monthly cash to fund your investments or your entrepreneurial ventures. Click To TweetMonthly Payment
Step eight, get the lender to show what the monthly payment would be on those homes. It should be the amount that you qualified first on your own. Plus, in my example, it was $600 rent but whatever your number is, it should be your original approval that you had, plus the rent number. That should be the new mortgage payment. Get that, print it up and stick it in a file.Gather Information
Step nine and this is an important one. Gather up the information on your potential roommates. I’m serious about this. Show their rental history or their monthly income and expenses. Show that the roommate you’re talking about is not sketchy and semi-guaranteed to $600 a month that you’re going to tell your co-signers coming in. You want to make sure that looks legit.Put Those Information In File
Step ten, take all that information, put it in a PowerPoint or a pretty binder and take it to your co-signer with your request. A little extra credit for you, step eleven, I suggest even showing a 3 to 7-year budget and plan on how you eventually want to put yourself in a position to take over the full payment with the roommate, either budgeting so you can afford it or increases in income, whatever it is that you have and so that you could eventually buy out your co-signer or simply remove them from the loan.Planning
That is a proper house hack. The cool thing is if the person that you’re asking to co-sign, let’s say that you run the numbers and maybe they can’t help you co-sign. Maybe they’ve got their money tied up in other things. They’re not approved for it. Lots of times, if you end up showing them this much time, effort and thought put into your planning, who knows? They might offer to help out in other ways. I’ve had people work this plan and they go, “We’re not going to sign for you but we’ll give you money for a down payment or we will give you that early inheritance.” Maybe they’ll say, “I’ll tell you what, as soon as you take the laundry off of it, you can have the pool table.” If the last five minutes of numbers and concepts were too much for you and you feel like your head’s going to explode, don’t worry about it. No stress. It doesn’t mean you have to comprehend everything the very first time you heard it. Who knows? Maybe this isn’t right for everyone. Maybe you just heard about this. You thought it was a cool idea but maybe it’s not good for you or maybe you heard this and you got a light bulb in your brain. Remember that the light bulb is step one. You can go to HowToBuyAHome.com and check out this episode. Read and highlight this until all those numbers make sense. There are plenty of great ideas out there that you might never heard of but none of them work until you fully understand it. Remember, I’m totally with you. The only thing I’m trying to sell you on is to sell you in your own belief in yourself and the fact that you have options. I’ve seen far too many people, including myself, rent for far too long and they end up missing out big time. You could be starting the road to financial security so much sooner than a lot of people do. You can still live your own life. You can do your thing while you’re also paying a mortgage and building a sensible financial base for yourself. You can do that all at the same time. Bear in mind, when it comes to having roommates, house hacking and having people live with you, I don’t know you and nor do I judge you. I don’t care at all. I don’t know what your potential roommates or your crazy hippie commune lifestyle. I don’t know what any of that is going to be. You do you. Rock on but remember, you got to make sure that it coincides with city’s zoning laws. You could have a home in your area that totally allows people to live in garages. That’s bitchin. You can stick all your friends you want in there. Knock yourself out. You can put tents in your backyard and make people pay you camping fees like a campground. I don’t care. You can buy a home. Qualify for it, get it, put a big circular bed right in the middle of the living room and rent nights to come to hang out with you. Swing and put that on Craigslist. It’s another form of income. Why not? House hacking can be whatever you want it to be as long as you’re not breaking any community, city, county laws or ordinances. Speaking of that, I’ve got something that some of my buyers learned the hard way. If you’re one of those people with Airbnb dreams, I know a lot of people do this and they make a lot of money that way, that’s awesome but if you’re thinking you’re going to make bags of money by buying a home in 2021 or 2022 and then later on, you’re going to rent it out and make boodles and boodles of money, remember, the laws are changing on this. There’s nothing set. What I have seen personally is the hotels are jumping in, lobbying with the cities, cracking down and changing these laws. They go to the city and explain how much tax revenue that the city is missing out by letting individuals rent their homes instead of hotels. We’re talking 10% tax on every hotel room and that goes right to the city. I know about this because I live near Disneyland. The city of Anaheim got hit hard by the hotels. The Airbnb rules have changed a lot. The same thing is happening in LA and New York, even by me at Laguna Beach and other tourist destinations. If you’re going to Airbnb, make sure you know the laws. Do not buy a home thinking that you’re going to be able to Airbnb it in five years exactly the same way that you can do it now. House Hacks: All you need is that upfront capital. You can get more of that by renting super cheap, and that'll help fund your idea faster and get you to that wealthier place later on. Click To Tweet We’re going to discuss that second, most common house hack I was talking about. This is something people ask me about all the time. In episode 37, I talked with one of the readers who ended up buying his first home as a multiunit place. If you’re going to be buying a duplex, triplex or fourplex, those are multiunit places. You live in one of the units while you rent the remaining units. It sounds like a great way to build equity and start your dream of becoming a real estate tycoon. Some folks like it as a way to buy and rent the other part of the place, the other units or unit to their friends and family. A lot of times, people do this as a family compound style, all these wonderful ideas and they can be done. The most important thing to keep in mind if you’re a first-time buyer is that this path is not the traditional path of a first-time homebuyer. A mindset change is a crucial right from the start. Let me put it this way. If you’re getting married and you go to a venue that does weddings regularly, a whole bunch of stuff is going to be predetermined easy and smooth. In the event, they’ll understand how it works. If you go to a restaurant that doesn’t do weddings and you ask them to use the outdoor patio for the ceremony and the banquet room for the reception, can it be done? Totally but there’s going to be a lot of things that won’t be getting planned in a normal fashion and will take some extra work because it is not your normal venue. I love this idea. I did an episode on it. I said, “It’s great.” I’m not trying to discourage anyone but be sure that you or all parties involved, whoever’s being part of this purchase realizes that this is more of an investment. It’s not that real-life fulfillment of the dream of owning your own home, going out and buying the picket fence. If you've got the hustle, go for it. If you want to invest in a property before buying your place, check yourself and your numbers. Click To Tweet This is buying an investment, so you got to change your mindset. The style of the home is going to be totally different. The money needed and the type of loan that you can get that’s going to be different. Being a landlord and an owner is way different than being just an owner. If you and all parties are down with this, let’s talk about the buying of the property. First, you got to understand you’re not buying from the family that raised their family in this house. All that personal connection stuff has gone out the window. This seller maybe never even lived in this property. You were buying from an investor who’s only been looking at this property on a spreadsheet. That’s the only way they see it, zero emotion. That’s how you got to see the other side. I’m going to tell you to look at yourself. I’m getting deep. You are no longer an acute excited first-time homebuyer. You are only an investor buying a property from another investor with investor rules, communication and negotiation. Forget every HGTV show that you ever watched in your life. I’m talking all of it, especially when you see the couple that are deciding between the rest of the country home and with a longer commute for Joe or the cozy colonial right near public transportation that’s perfect for Jill. Forget it. What’s the major difference is between an investor buyer, which you’re going to be if you decide to go this route and everything else that I talk about on all the other episodes for standard first-time buyers buying a second single property for themselves to live in. First and foremost, down payment, loan and interest rates are all different. The down payment and the interest rates are going to be higher. The loan is going to be probably a different product you could use when you’re buying your own owner-occupied property. Remember, you’re buying like an investor. Investors don’t get government assistance programs. The assistance in assistance programs is to help regular people buy a home, not to assist landlords to build wealth. You can still use a low down payment. I had some folks who bought a two-unit property with an FHA loan. It was hard. With that, I’ll get into that in the other episode. One thing you have to realize is you might be able to use some of those lower down payments or lower credit score loan products but the way it works out when the bank finds out that you’re going to be renting part of it, the rates are going to be higher. The requirements might change on the amount of debt that you can have and the minimum credit scores are going to be higher than if you’re just buying an owner-occupied place. That’s a place that you live in.
Important Links:
- Episode 37 – How One Listener Used The Podcast To Buy His First AND Second Home In 2020
- @DavidSidoni – Instagram
Instagram @DavidSidoni
Tik Tok @howtobuyahome