Complete House Hacking Guide

by Haydn Halsted

If you’re a young entrepreneur or someone that’s interested in real estate investing but maybe you don’t have the money, experience, or connections to jump in and buy your first deal - a great way to get started is by house hacking! And a lot of times people wonder if this real estate investing strategy is possible here in Spokane and I’m here to tell you that I personally do it, I have many clients that do it and you can definitely do it in 2022.

What is House Hacking?

House hacking is a term that I first heard on the Biggerpockets podcast and most traditionally it’s where you buy a duplex, rent out one unit and live in the other. Ideally, the rent from the other unit should cover most, if not all of your mortgage. Now, this was the case a couple of years ago before the market went through the roof and rents couldn’t catch up. 2020 was a harder year to find a house hack that would cover the majority of your expenses because rents were stuck due to moratoriums and rent increases usually trail behind a rising housing market by 12-18 months anyway due to lease terms and when they expire.

So we are just now starting to have a comparable rental market to the housing market again, which has been tough for many renters in Spokane experiencing a 20-30% increase in their monthly rent in some cases. But, the way around this was actually to not buy a duplex. Duplexes got really expensive over the past couple of years. You’re lucky to find one under $350K and with many of the “newer” duplexes, mainly anything built after 1970, being located in the valley, those prices were more like 450 up to 600 for a decent property. It just didn’t make sense to purchase one of these, especially using the recommended financing options that we will get into later.

The next best option was to purchase a triplex or even a four plex because usually the price to unit ratio would drop down quite a bit and you could generally get the same amount of rent out of each of those units as you would out of a duplex.

The biggest challenge being that it is a rare occurrence to find a triplex or fourplex even for sale and if they’re reasonably priced, they would get swooped up by an out of town investor.

Now, is it impossible? Definitely not. I just closed on a duplex with a buyer for under 300K, but they’re going to have to do some work over the next year to raise the rents to cover their expenses. You can definitely buy a cheaper multi-family property, but generally you’re going to need to do some work by raising rents, improving the property or a combination of both!

My recommendation for a lot of people and what I helped myself and quite a few people do this year was to house hack a single family home. I currently live in a 3 bed, 2 bath home where I live in the master bedroom on the second floor and my tenants live downstairs and share a bathroom between the two of them.

It’s basically like living in an up and down duplex, except I come downstairs and share the kitchen that has two refrigerators so I don’t even share that with my tenants. The only thing I share with my tenants is the kitchen and guess what? It doesn’t suck! But it’s because I’ve set up an environment for this to be successful and I’m going to show you how.

How to House hack a Single Family Home?

There are 3 key things to do in order to have a successful househack of a single family home without killing your roommates. And I want to preface this by saying that I live with complete strangers. If you have friends that want to rent a room from you then definitely go that way, but I know that any time I’ve lived with friends in the past, they didn’t really stay my friends afterwards because you get to know them and their personal lives a little too well.

So the first thing to consider is your screening process. My application process is fairly intense but it’s my house, where I live and my girlfriend lives there as well so I need to make sure that I like the person, I feel safe with them in the house, and I feel like they’re not going to cause any problems down the road. You’ll discover that when you post a room for rent, you can’t post it on some of the bigger sites like Zillow so you’ll be stuck with Facebook and Craigslist.

Everyone thinks these are terrible places to find a tenant but it’s worked great for me so far. Just be ready for an overwhelming amount of messages on Facebook because you’re about to post one of the cheapest places to rent in the city and most people won’t read the description, they’ll just immediately push the “is this still available” button on facebook.

There’s no parties, no animals, and even quiet hours and I want them to know that from the beginning. Anybody who actually wants this themselves for a reasonable price, is going to be interested because sometimes even having your own apartment doesn’t allow for this with loud neighborhoods that you have to share a wall with.

Generally, I’ll have a copy and paste message that lets them know there is an application fee, I’ll be pulling credit, doing a full background check, calling their employer, and past landlords. If they’re okay with that, I will then send them a video walkthrough of my house and the room they’ll be living in. Once that’s done, I schedule a phone call with them to ask a few questions and get to hear their voice, hear about where they work, why they’re looking for a new place, what they like about the idea of living in my house, and so on. If that conversation goes well and I’m feeling good about it, at that point I will schedule an in person walkthrough of the house.

Now you would think that I would have a ton of showings to go through, especially because I don’t make them apply beforehand, but surprisingly most people won’t even respond back after the first message. I usually only show the house to 3-5 people before finding someone that I like and they like the house.

So, when they come over to visit, I get to talk to them face to face, learn more about them and if they’re still excited about the property I will send them an application through apartments.com. They fill everything out, apartments.com runs their credit and background check for me and then I can review all my applications in one spot.

Once I find the tenant that I want to except, I invite them back to the house to go over the lease in person. My lease is pretty intense. It’s a combination of standard lease forms as well as a list of house rules that they are required to sign and can be penalized for if they break them such as bringing excess furniture into the house, being noisy, having people stay the night, and so on.

Some people might find it crazy, but my house is incredibly quiet at all times, everyone gets along, and things stay clean because everyone understands the expectations. Honestly, it keeps me accountable for cleaning up after myself and I probably live in a cleaner house right now that I would if I didn’t have roommates!

The Business

House hacking can be a business. I have clients who have purchase investment properties that are 6 or more bedrooms and run them like a hotel almost to get more cashflow and provide affordable housing at the same time.

In order to have happy tenants, which is especially important when you’re living with them, you need to give a little to get a lot back. My rooms are freshly painted, with new floors and fully furnished. They’re walking into a brand new room and don’t need to bring anything besides their personal belongings and some bedding. I provide a mattress, bedframe, dresser, and will be adding a desk soon. This is great for people that want to rent a room like this because generally they don’t have a ton of stuff, sometimes they’re only living in Spokane for a short period of time and don’t want to buy a bunch of stuff and when everything is in good condition, they are going to take care of everything much more.

Additionally, the kitchen and bathrooms are fully stocked with everything they would need. I provided dishes and utensils of all kind as well as paper towels, toilet paper, and soap.

Because of this, I can charge a premium. Many people think the amount I’m asking is a lot of money for a bedroom, but trust me, many people are fully ready to pay it for a clean, quiet space that they don’t have to worry about furnishing. Let’s get into the financials.

Finances

Alright, so what you can actually expect from renting out bedrooms in a single family home here in Spokane?

Going into it, I first was nervous because I thought $500 per month was my cap. Out of curiosity, I decided to throw my rooms up for rent for $650 per month and was surprised by the overwhelming amount of interest.

I feel like this has also helped me find solid tenants because the people willing to pay this amount for a bedroom also realize the benefits of living in the house and don’t get stuck on the idea of sharing a house with other people. These people realize that the pros generally outweigh the cons, especially if you’re trying to keep housing expenses low.

So, overall my house currently brings in $1300 per month and my mortgage is $1350. I cover the water sewer garbage bill and we all split the electrical evenly. So even if I didn’t split the leftover costs with my girlfriend, I would only be out the door about $250 to $300 per month to live in my house. It’s not a perfect house hack, but I get the entire second floor of a 1900 sq foot home all to myself with the benefits of the two car garage and backyard for less than a quarter of what most people pay for a 600 sq foot apartment. I would say that’s a win!

And you can definitely do better than I do! As I mentioned before, I have clients who have bought 4-6 bedrooms houses or have even bought duplexes and rented out the bedrooms in their unit so that their cash flow goes up and gets them even closer to that zero dollars per month or even making profit.

Conclusion

So, I think if finding a multi family property becomes exhausting or something you simply can’t afford, then finding a single family home that you can add bedrooms to is the way to go. You will not only be able to get into it for a lower price generally, but you will also experience more appreciation over the long term because it’s a single family home and you can use that to help move up into your dream house after you’ve bought a few legitimate rental properties using all that money you’re saving from house hacking.