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