House Hacking Exposed: Pros Vs Cons


what’s going on guys it’s Daniel one
half of the Kwak Brothers and today we’re gonna talk about something that I
get a question about probably every single day… house hacking! is it good for
you or is it that cue that intro and let’s get into it alright guys welcome
back and today we’re gonna talk about house hacking now for those of you guys
that saw this video you probably know what house hacking is right you saw the
thumbnail you saw the title and you were probably like Oh house hacking that’s
something that I’m trying to do right now well for those of you guys that
don’t know what house hacking is it’s pretty much when you buy a three or a
four unit building and you’re living in one of the units and you’re relying on
the other income the other streams of income from the other units to pretty
much take care of your housing expense so instead of paying rent instead of
paying a mortgage you’re allowing the other units to cover that for you well I
have the very fortunate and blessed life to be able to travel all around the
country and train on real estate investing and this is a topic that I’ve
noticed and observe is one of the most popular strategies to do right now so I
did a little research and I also took into account my expertise and my
personal observations that I’ve seen through hundreds and thousands of
different real estate investors and I’ve compiled three pros and three cons and
my results were quite shocking even to me so let’s go ahead and get into it so
let’s talk about the pros first let’s talk about three pros number one right
you actually are able to live at a discount or live for free so I do know
some friends that are doing this right now they buy if they bought a for unit
they got a residential mortgage or they predominantly popularly got an FHA
mortgage where they only have to put something along the lines of 3% down
that’s gonna give you a larger debt service if you have a lower down payment
now I understand that a lot of strategies out there are more focused
towards the short term they’re thinking well the less money I could put down the
last money I have to come up with a closing well there’s the other side of
that too where the less money you provide a closing the higher your
monthly payment is going to be right so the higher the loan balance
since day one the more interest is going to be charged that as well because well
the bigger the principle the bigger the interest you’re gonna have a higher
monthly payment but predominantly speaking if you have three or four other
people living in the same building that are paying rent you should get it at a
discounted or even three rate that’s the number one reason as to why people even
do house hacking let’s talk about reason number two reason number two is you’re
able to manage it yourself now why do I say that’s a pro right a lot of people
say well Daniel like if you’re managing it yourself isn’t that a con because
you’re putting all the work on your shoulders you’re the one that has to
deal with all the tenants guys if my experience in real estate the sooner you
can get experience with working with tenants and communicating with them
the better right I think one of the biggest things that throws people off
guard when they first get into a deal is how difficult it is it is a lot like
babysitting guys I’ve had tenants give me all sorts of reasons as to why they
can’t pay rent right like the wind blows and they won’t pay rent
all right I’ve heard all sorts of reason so in my opinion the sooner you’re able
to deal with tenants or work with tenants right that’s the better lingo I
think the better and you living in that building that 3 unit 4 unit whatever it
may be it gives you the experience while you’re on site so it’s a significant Pro
for me because it’s a long-term benefit to your skill set let’s talk about the
last Pro and number 3 well it helps you become financially independent now what
does it mean to be financially independent well here’s what it means to
be financially independent it means that you have a system of passive income and
cash flow coming in every single month to where it covers all your monthly
expenses so if you have a 20 unit building that’s cash flowing five
thousand dollars a month and your monthly expenses $5,000 a month meaning
you know your taxes your groceries right food on the table school insurance right
all your personal expenses you’re financially free you’re financially
independent it works in both ways right so helping you become financially
independent through house hacking well it not only takes away one of your
biggest expense in terms of your living expense it can
also potentially add more income beyond that to help you cover other personal
expenses as well and it’s a great way to kind of almost even do your first deal
now I will say that there’s a lot of different things in house hacking that
are different than going out finding a deal raising money and actually going
through with a deal so it may take you a little longer to structure your learning
curve to be able to do that but other than that if your goal is to be
financially independent well I don’t see any downside to it because it takes away
one of your biggest expenses while adding some income potentially as well
so those three pearls I really enjoy with house hacking I think there are
really good things to take advantage of if you’re looking to become a house
hacking advocate right now let’s talk about the cons now I think the cons are
a little bit more important while all my mentors in real estate investing always
tell me Daniel always focus on the downside more than you do the upside so
when it comes to house hacking let’s go ahead and list off some cons so here are
your cons number one when it comes to your cons the number one con that I see
it becomes harder to scale so if you’re looking to become a full-time investor
and you’re looking to do multiple deals a year it becomes hard to scale why
because you’re living in one of the units and you’re pretty much tied down
to that uniform minimum at least a year or if you’re using FHA it’s like your
first time hope you’ll never be able to do it again so in my opinion it prolongs
you learning about how to find deals on your own how to raise the capital how to
do the analysis and underwrite the deal to see if it’s a good investment to
learn how to close to recruit team members and what it takes right all the
things that it takes to become a full-time real estate investor and scale
a buying whole portfolio to where you can cash flow ten fifteen twenty
thousand dollars a month so it becomes absolutely hardest scale because house
hacking is such a different strategy than having to do the traditional real
estate investing deal or acquisition route so number one it’s hard to scale
number two it’s a very emotional process now what do I mean by that well if
you’re looking to actually purchase and pick a place for
you live right and think about this guys this is the place that you’re going to
be going home to every single day and night right it’s where you live it’s
where you call home it can absolutely become emotional and my favorite
entrepreneur and investor of all time Warren Buffett says that every business
decision should be completely emotionless you should have no emotion
in terms of the decisions you make in your business that’s actually the reason
why I never took advantage of the house hacking strategy matter of fact my very
first deal was a portfolio of single-family houses in which I lived in
none of the houses I was actually still in college guys I was a senior in
college living in University of housing right I was living in one of the
apartments that by Mike my school owned and that’s where I was living with three
other roommates that were also students right the traditional college lifestyle
right and I still bought four houses a portfolio four houses as my first deal
so I was always taught to not have any emotion in the deal in the business so
that’s Kahn number two and last but not least Kahn number three the numbers can
be skewed now why do I say this well in my experience guys the individuals that
are very hardcore about house hacking who are looking to make this their first
strategy they’re not in my opinion as educated as they should be in the world
of real estate investing they don’t know how to study the expenses they don’t
know that typically your debt service is gonna be around 30 to 35 percent your
expenses are gonna be 50 percent somewhere around that mark and that
leaves you 20 to 15 percent in cash flow that’s pretty normal guys if you’re
looking to buy an apartment complex well the people who do this house hacking
strategy typically right and if it’s you right you may be an exception right well
not but guys I’m just sharing from my personal experience of having traveled
all around the country and hearing this strategy and who even uses a strategy of
house hacking right they don’t know that it’s not just the taxes it’s not just
that there’s also a lot of things that are involved in terms of owning a
multi-family building so the numbers can oftentimes be a little skewed and it
also be stood in the fact that it actually doesn’t help people analyze the
deal for themselves later on because they’re looking for their own home they
have this expectation to live for free right but you got to forget when you’re
buying a four-unit and you’re living in there for free
you’re discontinuing the potential income stream that the last unit that
you’re living in could be what that last unit so a lot of times the numbers can
be a little skewed but again guys this is my overall thought right my overall
thought for this entire video and my overall sentiment portes house hacking
that is that if you’re looking to become financially free you’re looking to you
know you know to just pretty much get out of work and maybe do some side gigs
right maybe Drive lyft or uber two hours a day and just have the freedom then
yeah I think house hacking is great right I think it’s phenomenal I think
house hacking is a great strategy especially if you know you’re you’re
single and you’re in your 20s and you don’t mind living in an apartment unit
or a condo unit to just save some money right on the other hand if you’re
looking to build a real estate portfolio that’s over a million dollars and you’re
looking to scale your real estate business I will make the argument that
it actually harms you in the long run because it doesn’t teach you how to find
deals it doesn’t prepare you with the mindset of having these skill sets
having these skill sets that help you become a full time real estate investor
so overall I think it’s good but I also thinks there’s some cons that people are
not considering so again guys if you enjoyed this video feel free to
subscribe and like this button tap on that notification bell so that you’re
notified we’re always looking to put out some great real estate investing content
and challenge the things that are being said in the popular world right because
there are some cons that people don’t talk about so thank you guys much love
I’ll see you guys in the next one

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