Are you really able to live for free? I hear the term House Hacking all over the internet now. But what does it actually mean?
Living in high-cost-of-living Hawaii and working in the Real Estate industry, the concept of living for free definitely intrigues me.
After reading a few books and researching online, I have seen 3 different basic forms of House Hacking:
1. Rent with Roommates House Hack
The old classic, that pretty much everyone in college has experienced at least once, is Renting with Roommates.
A group of people rent out a multi-room house or apartment and split the cost.
Most people figure that once they’re out of college and “on their own,” they need to get their own place to feel independent, especially if they are a newly married couple.
But one of the best ways to keep housing costs down is to split them with a roommate.
It may not be the most ideal situation, but if you can split the cost of rent with a few other people, that is more money for you to put towards other things. Like student loans, investments, or saving to purchase your own home in the future.
If rent and utilities for a 2 bedroom condo is $1,800 and you split it with a roommate, your half is only $900.
When in a living together but not financially married yet relationship, you and your significant other can split the $900 for one-bedroom and pay $450 each.
Sometimes, a lack of privacy is worth the financial benefits, especially early in life.
2. Classic House Hack- Duplex or Roommates
Classic House Hack is where you purchase a home and rent part of it out while you live in it.
This could mean purchasing a 3 bedroom home to live in one room and renting out the extra rooms.
The rent from your roommates helps to pay off your mortgage loan, bringing your own monthly payments down while helping you build equity. But this again means giving up some privacy.
Another option is to purchase a duplex or other multi-family home. You then live in one unit and rent out the others.
Often, the Classic House Hack allows you to live almost free while your tenents’ rent pays for your mortgage, and sometimes more!
Classic House Hacker Math
If your mortgage, on a duplex, is $2,000 a month and you can live in one side and rent the other side for close to $1,800, you can end up paying only $200 a month for living expenses.
If you do this and want to have a roommate on your side as well, you might start actually earning money to live in your home.
Mortgage- $2,000
Duplex unit rent- $1,800
Roommate rent- $900
You actually earn $700 a month to live in your home!
All this time, you can take that extra money, plus what you are saving on your own living costs, and can pay off debt, invest for your future, or save up for another future home purchase.
This method is described in detail in Bigger Pocket’s Scott Trench’s book Set for Life.
The downside in this method is again, you give up some of your privacy. But it is up to you if you want people living in a unit with you or not.
You also must become a landlord, dealing with tenants. Or you can pay a Property Manager to handle the tenants, but that may not make sense financially.
If you’re willing to deal with tenants and want to buy a home anyways, this can be a great option for you.
3. Become a Resident Manager House Hack
I was recently looking for Real Estate books at the library and the book Don’t Own, Don’t Rent, Live Well by Matthew and Fiona Peters came up. (Apparently, it’s currently out of print so check your library or used book shops)
Of course, I was like “what the hey, I’ll check it out.”
They have a totally different angle on House Hacking, becoming Resident Managers.
This is an idea I had heard before, but mainly for college dorm living.
In every dorm building, there was a Resident Assistant (RA). The RA was usually an older student who was there to help students who lived in the dorm get situated and used to college life.
In exchange for being an RA, they usually got free room and board.
I had even heard of couples doing something similar on college campuses, but I never realized that it is a common position in apartment buildings.
Becoming a Resident Manager
In their book, the Peters tell the story of how they were living on low incomes. Just barely making their rent payments, they saw the sign for a part-time unit shower for their building.
Upon taking this weekend job, they were able to reduce their rent by a few hundred dollars a month.
That’s when the lightbulb clicked for them.
When they moved back to their hometown, they purposely found a Resident Management position for a small building in their town.
As Resident Managers, they lived rent-free in a nice building, while also collecting a small salary. They earned this by managing the building:
- Manage Maintinance Crews
- Collect Rent Payments
- Advertise for available units
- General property clean-up and care
By optimizing their RM duties, they were able to also keep their full-time jobs.
Becoming a Community Executive
The Peters share their strategies to optimize their Resident Manager duties, requiring less hands-on hours, and describe becoming Community Executives instead.
This allowed them to:
- Live rent free
- Still work their regular jobs
- Travel when they wanted
- Invest the difference of saved living expenses
A few of the methods they have created for themselves to become part-time Community Executives instead of full-time Resident Managers are:
- Look for building with 8-50 units
- Less than 8 and your services would not be cost effective to the building owner.
- More than 50 and you will have so much to do that it will become a full time position.
- Ensure the property website and phone voicemail have up-to-date and complete information. This answers basic potential tenant questions without your needing to reply directly
- Set up an emergency maintenance contract with a local handyman company to handle middle of the night issues
- Scheduling Office Hours instead of allowing constant walk-in availability
- And many others
By creating a system that requires very little hands-on work from them, they are able to continue working their full-time jobs, have a family life, and live rent-free.
Don’t Own, Don’t Rent, Live Well opened me up to this new form of house hacking, that has been done for years by retirees.
It requires a bit more work than some other forms of house hacking, but it can easily allow for totally free living and requires no initial investment.
Wrap-Up
House Hacking has become a very popular topic in the last few years due to the growth of the FI Movement (Financial Independence) and increasing housing prices.
If you are looking for some creative ways to bring down your own housing costs and build your investments while doing so, start thinking about how you can house hack.
With a little bit of work or loss of privacy, you can increase your net worth by leaps and bounds.
I was an RA in college. I never thought of doing something like that now as an adult. But that could save me a lot of money, not needing to pay rent or a mortgage.