Comin’ at ya with a new series!
Give me (Micah) a beer, 1-2 friends and conversation about income streams, business ideas and entrepreneurship and I am in my happy place. While Bailey is all about the entre life; she can’t always keep up with the pace and frequency of new thoughts that run through my brain. For better or worse “futuristic” is one of my top strengths and I am fully energized by these conversations. So, due to the fact that I have no friends to lend an ear while we travel, Bailey can’t stand it and the dogs don’t seem to care – I am turning to the blog. Some of these ideas will be new to the folks reading, some are new to me and some may be completely original altogether (although if I really like one of those I’ll probably keep it to myself :)) This is also meant to get the gears turning, not to be a comprehensive piece on each idea.
What’s The Big Idea? House Hacking!
One of the things that has allowed us to live a flexible life is shifting our living from a liability to an asset. This is commonly called house hacking and was one of the first moves I made in real estate. It’s also top of mind because (spoiler alert) I am in the process of purchasing a lake home that Bailey and I will be using to dip our toes into the short-term rental market.
So, who is this for?
If you are already a home owner
Perfect, you’ve already got an asset that you can start to use to make additional income. Owning a single or multi-family home is the easiest as you are not constrained by the bylaws of an association in a condo. Don’t worry if you didn’t think about house hacking before your purchase, there are strategies for each property type below.
If you don’t own a home
You are in a good position because you can be more strategic about your property decision. Generally speaking, I am a promoter of a multi-family property on your first purchase. My first purchase was a condo and I quickly learned after renting it that cash flow numbers were not ideal. As a first-time home buyer and a buyer of your primary home you have a lot of advantages that allow you to get into a property for less money. Bailey and I purchased our duplex with an FHA loan and 3.5% down.
If you are a renter and don’t want to buy right now
You definitely have less options at this point, but you’re not totally out of luck. Assuming your lease allows it and your landlord is on board you have some options with short-term rentals. A friend of mine started renting her apartment on Airbnb after she started spending more time at her partners place (why let the apartment go to waste?). You’re other option would be to rent your apartment when you are traveling for work or pleasure or you could even rent your place during big local events if you’re able to stay at a friends place. The prices here (Minneapolis) were outrageous for the Super Bowl.
What strategies do I recommend?
Property Types & Strategies
- Rent one unit and live in the other (easiest and most obvious). Bailey and I had done this for a couple of years. While living above your tenants can be annoying it’s actually super nice to be able to learn the in’s and out’s of property management and start to understand your property better. If you need to renovate, this is also the best time to do so while you are living in the unit.
- Rent both units to long term renters. This is what Bailey and I have done for the last year and a half. Fun fact, we rented out our 2 bedroom lower unit for $1,500 and moved into a luxury apartment for $1,700. This move also allowed us to get rid of a vehicle, which in the end our costs were a wash and we lived in a swanky spot in the city. Now we live in an RV… we like change.
- Rent one unit to long term renters and the other as a short term rental. This will be our strategy when we move home. Since we are purchasing another property we will be renting both on the short term rental market and moving between the two properties until we get a better sense for short term rentals.
- Single Family
- Rent out single rooms to friends or qualified renters. This isn’t for everyone, but can significantly reduce your payments.
- Rent out single rooms for short-term rentals on platforms like Airbnb. This may be a better option if you don’t want to get into any situation where you have to kick out your buddy for not paying rent.
- Rent your entire house during events in the area
What else should you be thinking about?
- Is your property a rental first property? If it’s personal, you can be more flexible on your ROI. If it’s an investment, you better do your due diligence to make sure it will cash flow properly.
- What does the rental market look like for comparable properties? Take a look at craigslist, rental sites, Airbnb, VRBO, etc… There are even tools like https://www.airdna.co/ that give you aggregate data on the short term rentals in an area.
- What does the neighborhood look like? Look at crime maps, walk scores, parks and other things of interest near your prospective property.
- What else can you do to increase your potential income? For example, with our newest property we will be renting a pontoon for an additional fee.
I love this stuff if you can’t tell. Please, if you have any questions reach out. If you’re local, let’s grab a beer. If not I am happy to chat or call on Skype. – Micah