- Hi, Clint Coons' here with Anderson Business Advisors.
And in this video, we're gonna discuss
house hacking.
All right, let's get started.
(upbeat music)
All right, so what is house hacking.
Well I assume either you're interested in what it might be
you never heard of before,
you're like, hey yeah, I wanna learn how to hack a house.
Well, here's what it is.
So for our house hacking,
what you're gonna be doing is,
you're gonna buy a property.
So you're gonna buy this house.
Then what you're gonna do,
let's say it has four bedrooms in the house.
If you're buying this four bedroom home.
And the mortgage on that four bedroom home
for you every month is $3,500 a month.
Well, you don't wanna afford all that.
Or maybe you can't afford that type of mortgage,
or maybe you just want it covered.
So what you'll do is you'll take those three bedrooms
in the house, one, two, three.
And you're going to then
rent those bedrooms out to individuals.
One of my son's friends came over a week ago and
he's working for Lockheed Martin right now.
And this is actually what we were talking about.
He's a house hacker.
He went out and he bought a house.
He put in three tenants into his property.
So he lives there and he charges each of them
$1,000 a month.
So he's gonna charge them $1,000 a month to live there.
Now if you have a $3,500 mortgage
and you have three people paying you $1,000 a month,
you're bringing in three K a month towards that mortgage.
So then what is your actual cost? $500.
So you don't have to pay the entire amount, right?
You're only paying $500.
Yes you gotta share a bathroom maybe with other people
and you can't walk around naked anymore
like you used to in your house
because there's three other tenants there.
But the point is,
you're getting your mortgage covered and that house paid for
by other individuals.
So that's one way that people do it.
Another way I've seen people do it
is they buy a duplex, right?
Like this, you buy a duplex, you live over here.
So you can walk around in the nude
and not have to worry about people.
And then you have other people living on this side,
over on that side of the duplex.
And again, same concept, right?
My mortgage for this duplex is four K a month,
$4,000 a month.
However I have these people paying me $3,000 a month.
So really I'm paying $1,000 a month
towards this property to acquire it.
So that his house hacking right then and there.
Now, the question always comes up.
How do you structure this deal? All right.
To protect it.
Now ideally, if we're thinking it's just strictly
in terms of asset protection.
If you think about multiple rentals.
In this example up here,
we're not renting out individual properties,
we're renting out individual rooms.
So it might be cool if we could do this,
create a little LLC for that room,
create an LLC for that room and other one for that room.
So you walk into his house
and you go to the room that you're renting
and above the room,
it reads a M 16 LLC.
And the one below it says G4 LLC,
And the one down there says,
This is your room limited liability company.
And so when the tenant walks into there, they realize,
hey if I don't like anything and
there's mold in the room,
I can't Sue the owner of the property.
I can only see this LLC.
Okay, not gonna happen.
You're living in a fairy land.
In fact there's probably people out there
that teach that type of strategy
because they wanna sell you a ton of LLCs.
Ain't gonna work, okay.
They're gonna go after the property owner, which is you.
So you're in this situation where
you can't break out your liability from your tenants,
better make sure your insurance covers them by the way.
So what you then need to do is look at
what am I gonna do with the property overall?
So the risks that you're facing here,
that is an issue for house hackers is
not only the property itself being at risk,
but you're gonna be at risk,
that if somebody, something happens in that property,
they're gonna sue you personally.
And if they sue you personally,
they get a judgment against you.
That's gonna carry forwards for 10, 20 years.
And that's gonna make it impossible or very difficult
to buy real estate until you pay that off.
So here's what you wanna do.
You wanna take this property
and you want to stick it in a limited liability company.
You want to put this in an LLC right here.
But, it's gonna be a special type of LLC.
This is key here.
This LLC needs to be a disregarded,
a disregarded LLC.
Why a disregarded LLC, because you want to preserve,
all right, you wanna preserve,
what is your 121 capital gains exclusion.
You know, when you sell a piece of property,
you can exclude $250,000 per person.
So we wanna use the LLC disregarded.
So I can still capture that 121 gain exclusion
when I sell this house.
Now, I might suggest you take it one step further
in your protection strategy here.
And again, it would apply down here as well.
You might wanna set up,
if you have other real estate investing going on,
maybe you set up a leasing company over here, right?
This is a Corp.
And you have your tenants come through the Corp
and you put them in here this way.
So you have another just buffer there between the tenants
and your business.
And in fact, they don't even need to know
that you're an owner,
in this context since they're dealing with the Corp,
they may think you're just another person renting
a room in this house.
But the idea is that this entity now
can you get a little tax benefit there
because you have the money
running through the C corporation.
You can take that money out other ways.
So there's a few different ways we can structure this deal.
But as far as an asset protection is concerned,
I would structure it like this,
put the LLC in place around the property.
And it'll depend on the value of the property.
If you wanna take it to another level,
check out my zero loss real estate strategy,
that if something happens to you,
there's a way in which you can not guarantee,
but awfully darn close to make a creditor,
not wanna deal with your property,
take the insurance and go away.
Be sure to catch that video,
zero loss strategy when it comes to asset protection.
But this straight up LLC,
get it in there.
And oh by the way, if you have a mortgage that concerns you,
that the lender might accelerate,
you know a friendly land trust,
You can do this.
You could first put the property into a land trust here,
and then drop the land trust
into the limited liability company.
If you don't know what I'm talking about,
got tons of videos on that.
Check out my YouTube channel on land trust,
and setting those up, I describe it in detail.
Valuable tool if you're worried about
the lender accelerating.
All right guys, if you've got any questions,
be sure to put them down in the comments below,
like the video,
if you've got some information out of here
and you want other people to notice it.
And make sure you subscribe to my channel,
last but not least.
If you have any ideas, topics that you say,
hey Clint, I'd love to have a video on this.
I haven't found out answer.
Be sure to just send me an email.
You can find my email there in the notes section,
drop me an email.
I'm always looking for new ideas for content to put up
on this channel.
All right, take care everyone.
All the best with your real estate investing.
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