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The Man Who Retired at 27: Why You Should Consider House-Hacking

Way back in the olden days, people used to be amazed at my life story. I was
“The Man Who Retired at 30”, and it was so unusual that it would show up in news headlines all over the place. 

Thankfully, this is no longer such a surprising story. The idea of financial independence has spread far and wide with the rise of the FIRE movement, and people now realize it’s not such a big deal after all. And in fact, people are doing more innovative things than I did, and getting themselves to financial independence in less time.

My story was a nine-year working career, and retirement at 30. This was achieved by earning an engineer’s salary, not spending all of it, and investing the surplus in very standard index funds and fixing up my own house.

Today we will learn about a guy who did it in about three years, and is now financially free at age 27. And this was accomplished on a lower salary, without the cooperation of the badass and high-earning partner that helped me, and without my own honey badger dedication to bike transportation and DIY home renovation.

His secret was simply buying houses in an area with solid demand and renting them out. But with an interesting twist: by partitioning larger houses into smaller, more affordable units, he was able to make a small initial investment go much further, and grow much more quickly.

This is an age-old business model, but it has come back in a newer, better form and today it sometimes goes by the name House Hacking. And my goal with this article is to get you to consider the practice, because it is often the highest hourly wage and most flexible job you can possibly create for yourself. And, if you do it right, you are improving your city by providing a useful service, making housing more affordable and increasing density in a place where it is needed.

What is House Hacking?

At its most basic level, this is just a trendy name for “renting out part of your house as an apartment.” You can go further and add layers of complexity (and profit), for example moving yourself into that apartment and renting out the bigger part of your house, a move which I call the “Mustachian Inversion.” Or go even further and live in a tinyhouse in your own back yard. But at the core, we are still talking about renting apartments. 

While it may sound a bit daunting and/or inconvenient if you’ve never done it, the reality is that becoming a landlord is usually surprisingly easy, and also ridiculously profitable. Seriously – almost every one of my friends these days has some form of rental property, and is financially independent. And these two life conditions are usually related.

So if you currently live somewhere with extra space – or if you plan to shop for a house at any point in your future – and you have any use at all for more money, you should consider it seriously.

There are two fundamental reasons that house hacking works so well:

1 ) Rents are Non-linear. Or in plainer English, people pay a lot for their first bedroom, bathroom and kitchen. But they only pay a little bit more for each additional bedroom. So as the homeowner you can sacrifice just a little bit of your space, but get a larger portion of the rent that you would have collected from renting out your entire house. 

2) Borrowed Money is Ridiculously Cheap. We are living in unprecedented times, where banks are willing to lend out huge amounts of money at just about zero cost after you adjust for inflation. This effectively makes houses cheaper to own, because you lock in the purchase price today, but pay it off super slowly with dollars that are worth a bit less with each passing year.

With those big puzzle pieces in hand, let’s put the rubber to the road with a real-world example.

In fact I can use myself as a case study because I currently own a house all to myself, with a bit more space than I need. 

Case Study: Should Mr. Money Mustache Hack his Own House?


Dear Self,

I currently have a small house in Longmont, Colorado, which is a fairly expensive market because it is right next to the stratospheric wealth engine of Boulder. The current value is about $390,000 which includes some renovations I have done since I bought it. 

The total house size is about 1800 square feet:

  • 900 sf main floor
  • 500 sf finished basement which includes bedroom, bathroom, and small kitchen/living area
  • 400 SF finished 2-car garage which could become living space if I wanted.

I don’t have a mortgage on this place, because I am overly conservative and bought it with cash. But if I did, it would have the following monthly stats:

  • Outstanding balance: $312,000 (assuming a 20% downpayment)
  • Monthly payment: $1600 (includes principal, interest, taxes+insurance at local rates)

Note: This is assuming today’s 30-year interest rate* of about 3.08%

… a couple of additional details:

  • Amount of this that is Principal Repayment (a form of savings): $520
  • Actual carrying cost of the house after you account for that principal repayment: About $1080


First of all, wow, isn’t it amazing that you can own a $390,000 house for only a thousand bucks a month of actual cash outlay? That’s the cheap money at work. 

But that’s just the beginning of the amazement. Because my house happens to be in a row of townhouse-like identical detached houses located along the side of a small hill. The fronts of these houses have a few steps down to the sidewalk, and street parking. The backs of the houses are accessed by an alley, where we each have a two car driveway, two-car garage, and a ground-level entrance which leads to the sorta-walk-out basement. 

This setup is just ripe for creating a separate apartment, and indeed several of my neighbors have already done so. So what if I did it myself?

Scanning Craigsist and Zillow for smallish 1BR apartments in the better neighborhoods, I am surprised to see them in the $800-$1000 range. Especially with off-street parking and the fact that my house backs onto the main bike path and a beautiful greenway with a mountain stream running through it, I feel confident that I could be within this range so let’s say $900.

So where does this leave us?

  • Monthly rental income: $900 per month ($10,800 per year)
  • Portion of house carrying cost covered: 83%! (900/1080)
  • Portion of total house payment covered: 56%

Wealth difference over the first ten years, if you conservatively reinvest the proceeds: about $150,000


Wow! So even in this very beginner situation, I cut my housing costs by 83% and increase my wealth by $150,000. Just by giving up a portion of my spare living space and putting up a Craigslist ad. 

I wonder what would happen if we took this even further?


Meet Craig Curelop

Our House-hacking member Craig Curelop shares his stories with a group at a recent event at the HQ Coworking space
(which you can join too)

Craig started with this strategy in a small way, but scaled it up rapidly. It went roughly like this:

2017: bought a house in a less-than-pristine but very central Denver neighborhood for $385,000 (with only $17k down). Lived there in one small room partition, rented out part as an apartment, and rented out the rest as an Airbnb.

Rental Income: $2850/month (plus free rent he values conservatively at $400)
Costs: About $2250 including expenses
Net cashflow benefit: $1000/month = $12,000 per year.
(including principal payoff, this is over a 100% return on that initial $17k downpayment!)

So at the end of year one, Curelop’s portfolio looked like this:



2018: Bought a second house for $343,000 ($27k down including some upgrades). Then immediately rented it out by the room for a total of $3100 per month. Carved out a little space for himself, and moved in. Raised the rent on the previous unit since he wasn’t living there any more. The end result was this:


2019: With so much passive income already rolling in, Craig continued to save vigorously and bought another house for $380,000, this time with a 5% downpayment ($19k) plus $32k in repairs and other costs to make it a nice two-unit rental. This brought him to this situation:

And BOOM – at this point Craig was already set for life.

$4150 per month is more than enough to live on, which means he never has to work again – unless he chooses to do so. This happens to be my personal definition of “retirement”, because the old definition of ceasing to work is obsolete. Work is better when you don’t need the money.

And it gets even better. The $4150 number is before taking into account the fact that about $2000 of principal is being automatically paid off on these three loans per month, or that they are appreciating in value at an expected $3000 per month based on expected inflation alone. And thanks to US tax laws regarding property depreciation, a large portion of this cashflow arrives completely tax-free.

And as luck would have it, the Denver real estate market has gone up much faster than inflation in recent years, boosting his net worth by an additional $100,000+.

All of this wealth has been exploded out of an initial cash outlay of only about $100,000. With this amount invested in index funds, the 4% rule would suggest you rely on only about $4000 per year of passive income. Craig is getting about ten times higher returns, in exchange for some good brainpower, a moderate amount of work and some risk – all multiplied by the magical power of massive leverage with money from banks.

A Bit More on Risk

So far, everything sounds almost too good to be true. And indeed, this story is an unusually successful one. Things can and do go sometimes wrong when you use leverage, so it is important to know what could happen:

Interest rates on a fixed-rate mortgage are locked in, so this part is relatively safe.

But economic conditions can flip in a heartbeat. If you have multiple rental houses, you could end up in a situation where all of them are vacant for several months at a time. Or, rents could decline by 20-30% and stay there for a year or more, as may currently be the case in Pandemic-affected cities like San Francisco and New York. If your rentals are in a one-trick town and that industry happens to evaporate like typewriters or coal mining, you could be faced with dropping rents and property prices. The worst case could include defaulting on your mortgages and losing all accumulated equity.

There is no free lunch, but real estate is a fundamentally sound human need – people will always need housing. So as long as you keep your leverage reasonable, your profit margins high, and your lifestyle costs low and flexible, you decrease the chance of big financial stress. Which brings us to our next point: you don’t have to push the limits of leverage far in order to be very successful.

Because Craig has been so aggressive and efficient, it can seem a bit intimidating to hear his story. And in fact, I’m hesitant to even mention that in 2020 he has gone even further and bought seven additional homes, just because he is on a roll and enjoying the game (for now).

Oh, and while most wealthy people go out shopping for mountain houses, Craig is going the opposite way at the moment – experimenting with Van Life, having bought a nicely converted vehicle which is currently parked in the back yard of our HQ coworking space.

Oh, and he also wrote this book on the subject.

But fear not. You absolutely don’t have to go to these extremes in order to become financially independent. Because all you need is enough money, so that you no longer have to think about the stuff. House hacking is simply a very powerful tool to get you there much faster.

So if you do have a use for more money, you should definitely keep this in mind. Even the slightest bit of dabbling like renting out a basement or making sure your next house has a suitable rental space, can cut years off of your mandatory work career, and bring in an income equivalent to hundreds or thousands of dollars per hour that you to put into it.

It’s well worth the hassle, and you just might discover that you love it.

In the Comments: Have you tried house hacking or at least rental real estate? How has it been working out for you?

Do you have a question for Craig specifically? Feel free to ask him here, and I’ll invite him to participate in the discussion. You can also find him at his own website, where he has built a small team for continued real estate deals and other fun, at https://www.thefiteam.com/



* Indicates an affiliate link – MMM may earn a commission if you decide that Credible’s Mortgage rates or Student Loan Refi Rates are the best for you, see affiliates policy.


  • Mark October 23, 2020, 10:42 am

    Great article. Just bought a house and will be renting out two rooms for the first year to bring in some extra income while I make some upgrades. Also good to see the “mortgage principal is a form of savings” reiterated here…always a hot button topic at the forums.

    Reply
    • Eklas Ibrahim October 24, 2020, 7:04 pm

      Buying homes and renting is a great way of making income, however, I agree with some of the commentators that owing large debts is not necessarily financial freedom. One of the ways we chose to follow is interest free buying. A nonprofit organization bought our humble townhome, we put 20% down, then paid $1365 monthly for ten years, (rent to own), our home is now paid off,. ($235,000) We purchased an investment property and again 20% down payment and home will be paid off in eight years while the mortgage is being paid by a renter. This process makes a lot more sense to me than just obtaining more and more debts through banks. it’s not for everyone because if the large down payment and time constraint to finish paying off. This is the basic concept for those who avoid interest in their dealings because of religious teachings. I am now convinced that this is the way to go for anyone regardless of spiritual background. i wish this concept becomes mainstreamed and it would be a great way to make housing affordable!

      Reply
      • Peg Leland October 29, 2020, 2:03 am

        What are some examples of companies that do this? How to they benefit?

        Reply
  • DSD October 23, 2020, 10:48 am

    We tried renting a house we owned when we relocated to another city. A few months later it was raided by the police because our tenant’s boyfriend was storing large quantities of weed in one of the bedrooms. After eviction we found damage where they pulled too far forward into the garage and damaged the drain pipe in the wall from the upstairs area. That plus some other minor damage resulted in a net loss for our attempt at renting. Will probably never do it again.

    Reply
    • Mr. Money Mustache October 23, 2020, 10:57 am

      Good point! Tenant screening was a big part of Craig’s presentation, and there is a real skill to it.

      In my own life, I’ve had three rental houses and about 20 sets of tenants. It was a wonderful experience and completely trouble-free except for 2-3 groups of people, who were complete troublemakers.

      And in retrospect I knew it even from the first interview – I just fooled myself into believing their stories and gave them a not-deserved benefit of the doubt. The trick is to NOT let people into your house, who aren’t ready for the responsibility of a home occupancy contract :-)

      Reply
      • Elke October 23, 2020, 6:51 pm

        Yep, second what you said: “in retrospect I knew it even from the first interview” Most of my tenants have been great and I really enjoy the freedom the income of my rentals have provided our family!

        Reply
      • Katie Camel October 23, 2020, 7:08 pm

        Yes, there is absolutely a skill to selecting renters. My brother built his own real estate “empire” in the last decade. He’s had multiple tenants destroy his properties, deal drugs out of his homes, house weirdos and derelicts, set fires, etc. When potential renters check out his properties, they immediately want to move in because of how nice he’s made them. But not so fast! His new tenant screening method? “Great! Now that you’ve seen my house, let’s go look at yours!” he tells them. If they refuse, they’re out. If they show him and the place is a disaster, they’re out. If they have weirdos hanging around or drug paraphernalia, they’re out. If anything seems off at all, they’re out! He has plenty of people willing to rent from him because he’s made a good reputation for himself.

        It’s been extraordinarily hard work and he does most of the maintenance, etc. himself in order to keep the profit, but it’s been worth it for him. He generated a net worth that is well into 7 figures within a decade — that’s without a college degree and while raising a family. His mentors are worth substantially more ($10 million +) and are still working well into their 50s and beyond because they love what they do. One is worth more than $30m and continues working in his 80s. He doesn’t need the money, but loves doing deals. This mentor also lives in a very modest house, but on a beautiful country property with a pond that I doubt is worth even $700k. For the right person, real estate is definitely a great option.

        I keep struggling with the idea of jumping into the game with him. At the right time, I think I will. I’ve just been a stock investor for so long that it’s hard for me to consider an alternative. If I get married and vacate my current home, though, this place will likely be a rental. It’ll be hard to have someone else living in MY home, but I like the idea of someone else paying my mortgage.

        Reply
        • John October 24, 2020, 11:38 am

          Do you all not have to abide by fair housing laws? Because holy crap, asking to see an applicant’s current home is a huge lawsuit waiting to happen.

          Reply
          • Michael October 24, 2020, 8:47 pm

            What state has laws that prevent a landlord from viewing the condition of the tenant’s current leasehold?

            Reply
            • Sol October 25, 2020, 4:01 pm

              California for instance. In the city I live in (Oakland) it’s even crazier.

              Reply
              • Nona October 26, 2020, 1:08 am

                Are you allowed to speak to the renters’ former landlords? That’s what I did (besides coming to visit).

          • Chuck Albacore October 27, 2020, 8:41 am

            There’s no law against asking. Making it a *requirement* is another issue. I have been known to drive by a potential applicant’s current address to look at it/confirm it exists and I’ve even shown up at an applicant’s place of work to ask their boss about their employment. I own 6 properties since 2015 and have had EXCELLENT tenants – not a bad one yet!

            Reply
            • Steve Olson October 29, 2020, 2:35 pm

              This is insane on so many levels. I cannot fathom a potential landlord literally showing up to my work. I can’t say for sure it’s illegal, but it sure should be, jesus.

              Reply
              • Patrick November 2, 2020, 2:29 pm

                I would speak to the neighbours of their previous rental. Their previous landlord may want to get rid of them and will give a glowing report. Happened to me. Actually, I just spoke to their previous landlord over the phone- it turned out they had given me a phone number of a relative, not their landlord.

  • Mark October 23, 2020, 11:10 am

    Don’t see how you can advertise taking on multiple mortgages as prudent. Leverage is only “magical” if the bet is going your way. “Some risk” is a massive understatement. Craig may be FI on paper but his payout function is concave… and that’s what matters.

    Reply
    • Mr. Money Mustache October 23, 2020, 11:41 am

      Well, your opinion is welcome but pretty much the entire, generations-old field of rental property investors would disagree with you!

      It’s not the number of mortgages that creates risk, it is the safety margins built into the design of your investment portfolio. And your lifestyle.

      If you plan conservatively it can be far less risky than the typical person’s strategy, which is relying on keeping a job in order to remain financially solvent.

      Reply
      • Sendug October 26, 2020, 6:18 pm

        This.

        Banks are currently requiring you hold at least 6 months’ worth of rent in savings to get a new place, but I just let the money pile so my real estate account is over 12 months’ worth right now, meaning I could go without a tenant for a whole year and not dip into personal savings. There also has to be enough to cover capex.

        Additionally, over the long run, even just ok deals turn into good deals. As long as it’s cash flow positive, just wait. And Mustachians should have so much buffer built into their personal expenses and savings that they could recover from a temporary hit, even if it does exceed your RE savings. If not, then maybe you’re not ready for real estate.

        Also, going back to 2008 with people being upside-down on loans, that only affects those who sell. If you have enough to ride out the storm, you’ll be fine.

        I’d think that tenant screening would be the bigger issue for Mustachians. Anyone who lives frugally and saves 30-70% of income doesn’t worry about an extra expense popping up.

        Reply
    • Ross October 23, 2020, 12:17 pm

      My buddy had lots of properties in Cleveland and was living off the income, but when the market tanked in 08/09 his renters all walked out and he didnt have the cash to cover 5+ mortgage payments, and had ditched his engineering job, so the banks got the houses.

      It doesn’t have to be a one trick town, especially if you buy at the wrong time and end up upside down on equity like everyone was across America by 2011.

      Reply
      • Frank Crenshaw October 24, 2020, 9:37 am

        What were the short and long term consequences for your friend?

        Reply
      • David October 24, 2020, 3:20 pm

        It’s true that this takes skill and thought, and a person could easily go wrong, both by having an insufficient buffer or by pure chance. It’s also worth noting that a ton of people lost their houses, businesses and jobs in 08/09.

        Reply
    • Michael Marks October 24, 2020, 2:10 pm

      I agree. Look into Illinois’ eviction moratorium that’s in place right now to see what can happen when one is caught flat-footed with too much “leverage.” People are being ruined using this strategy, due to circumstances and government dictates no one could have predicted.

      Reply
    • Michael October 24, 2020, 9:18 pm

      We started with four rentals (two with mortgages) and a mortgaged primary home. When the rentals were fully occupied and nothing broke, the outcome was great. But it was inevitable that we would have two vacancies (rentals #1 and #2), a major repair (rental #3), and a tenant request a rent reduction (rental #4), and at the fourth…all at the same time. Rental #1 needed costly mold remediation to get it back to habitable.

      That was two years ago. In Feb 2019, we fixed and sold rental #1 instead of trying to fill it. The proceeds also paid off the the mortgage on rental #2. In Feb 2020, we sold rental #3 and used the proceeds to pay off nearly all of our primary rental.

      Now, with two paid-for rentals, we actually make more money with less stress about repairs or vacancies than we did with four rentals with leverage. I will take this approach any day.

      Reply
      • Felix October 26, 2020, 7:15 pm

        @Michael : What you did is a great strategy for people who want to live off rental properties, but not build a real estate empire! Buy 5 properties, one a year for five years. Wait until the equity on two of them can pay for the mortgages on two others. Sell 2 and pay 2 mortgages, the cash flow of these two should pay for your (frugal) lifestyle. For the 3rd, keep it and continue to pay the mortgage, use the cash flow on that one to pay for the red Porsche, Tesla or other doodads! :-)

        Reply
    • Craig Curelop October 26, 2020, 4:51 pm

      Hey Mark,

      Not all debt is bad debt. Obtaining mortgages in this environment of 2% to 5% rates is actually not very risky. Especially when the rent is clearing my monthly payment by over $1,000 monthly.

      Reply
  • Jason October 23, 2020, 11:14 am

    This topic is near and dear to me. Given that reducing your expenses is the most impactful way of achieving financial independence, and your housing expense is almost everyone’s #1 expense, then the most rational, efficient & optimized way to achieve FI is through reducing your housing expense, i.e. house hacking!

    My personal case study: I’ve wanted to house hack since around 2014 when I first heard about it, but couldn’t because I lived in San Francisco and could not make the numbers work for a variety of reasons. Once I moved to Denver in 2017 I went to work to find a suitable house hack.

    I found a $750k triplex in a top Denver neighborhood right off of Redfin that needed some work (about $30k) to fix it up. My incoming rent when I bought it was about $4,500 per month. The mortgage was $3,600 per month with tax & insurance. When one tenant in the smallest unit moved out we moved in and went to work rehabbing the unit. Even with only 2 units now paying rent, we were still receiving $3,600 per month, enough to cover the mortgage. So we were living, essentially, for free in a great Denver location.

    Today, we have renovated all 3 units and increased the home value (with help from appreciation) from $750k to $950k. If we rented out all three units today they would rent in total for about $5,300 per month. We are now living in one of the larger, nicer units, but still live for free as the two units we rent out are more than the mortgage+tax+ins. We’ve refinanced twice to take advantage of lower rates. Through principal payments on the loan, our tenants have also paid down $50k+ in only a few years.

    So through house hacking, we live for free in a great location, plus have the benefits of tenants paying the loan down, tax write-offs, appreciation, and even created sweat equity by buying a fixer-upper.

    I fully believe in index fund investing as the main lever of wealth creation, but I think house hacking should be considered more by the average person. It can be incredibly powerful.

    I’m planning on writing a more detailed breakdown in the future on my site. Thanks, MMM and Craig for the great post!

    Reply
    • Stacy October 26, 2020, 6:11 pm

      Jason,
      We are planning on doing something similar, but not living there. We want to sell a townhome and buy a multiplex unit requiring renovation. How did you go about moving people out to renovate while you fixed up each unit? Did you wait until they were leaving to renovate the 2nd and 3rd unit? Was there any interest in one of the current tenants moving into the nicer renovated unit down the hall once you completed it, or was it too price prohibitive for them to do so? Often these fixer uppers also have super low rents if you buy with that intention, so I was curious how you addressed that.

      Reply
      • Jason November 1, 2020, 11:33 am

        That’s correct, we waited until they were leaving to move in ourselves and renovate the unit. Of course, if your intention is to get access to the unit faster so you can renovate, you can always aggressively increase the rent when their lease term runs out. You could offer that newly renovated unit to one of the other existing tenants, but I think you’ll find that the higher pricing is going to be prohibitive for them. It’s usually a different demographic when you are talking about a $200+ increase.

        Reply
  • CincyCat October 23, 2020, 11:17 am

    $4,150 in passive income – which is still subject to income taxes, if I am not mistaken. I am also wondering how much of each month’s rental income is Craig setting aside for routine maintenance & repairs of all of these properties? The only “reserve” figure I see above is $400 a month, which doesn’t seem like nearly enough.

    Reply
    • Lev October 23, 2020, 11:50 am

      Not if you outsource all the “maintenance and repair” activities, maybe.
      $400/month/a property sounds like a huge amount of money for housing keep-up if you ask me! And he has mortgages on all the properties, which means that he is insured against high-cost repairs by Homeowners insurance, even if it is the cheapest one!

      Reply
      • David R McCorkell October 23, 2020, 3:31 pm

        I rent 3 properties and 2 of them this year needed HVAC. That ended up being about $10,000. So I won’t recover from that for awhile, though I have always saved $200-300 per month for these things, I didn’t have enough for both in the same year.

        Reply
      • CincyCat October 23, 2020, 6:14 pm

        From what I read above, it is $400 in total per month, not per property.

        Reply
    • Tori October 23, 2020, 11:57 am

      An impressive amount of it isn’t taxed as you can write off interest expense, taxes, depreciation, and any maintenance/repair expenses.

      Reply
      • Brandon October 24, 2020, 2:08 pm

        Hi Tori, the examples are saying he makes $4,150 in passive income above all the expenses that can be written off. So, if it can be written off it’s only because it’s NOT going into his pocket as passive income.

        Reply
        • Michael October 24, 2020, 9:41 pm

          He can deduct 1/27.5 of the total value (not equity) of the properties as non-cash depreciation.

          Reply
          • Phil October 26, 2020, 1:52 pm

            He can deduct 1/27.5 of the cost of the buildings, not the land, as depreciation

            Reply
    • Kristine C. October 23, 2020, 12:17 pm

      Exactly my questions as well. As much as I’ve always wanted to try this strategy, my husband has resisted. His parents owned a 3-family rental building and nearly every weekend my husband, his brothers and/or his dad needed to mow or shovel or fix something in one of the units. Owning rentals isn’t totally “passive” income and actually lots of work in some instances. Just have to consider all facets.

      Reply
      • Jerry Penner October 23, 2020, 3:51 pm

        Your husband’s parents were trying to save money by doing the property management and maintenance themselves. I agree, not passive and not scalable. Hire a property manager to handle all that stuff and you now have a profitable, scalable, passive income.

        Reply
    • Craig Curelop October 26, 2020, 4:54 pm

      Thanks for the comment!

      The $4,150 actually takes into account all future repairs and vacancy for the house. It does not take into account property management. So maybe subtract $1,000 of that for all properties to be managed monthly.

      This is subject to income tax. I am not an accountant (full disclosure), but I am able to write off depreciation on each property (paper loss and not a cash expense). So despite making $4,150 per month in rental income, after expense write offs and depreciation, according to the IRS, I will actually LOSE money and pay little to no taxes.

      This is a big reason why 90% of the world’s millionaires invest in real estate.

      Reply
    • Karen October 31, 2020, 6:30 am

      We have a single-family rental residence in San Diego, and have been renting it out for four years – and we have yet to see a profit. It’s in an “up and coming” neighborhood, and frankly I’m surprised at how much we can rent it for but that’s the going rental rate. We also have a property manager, and after our first tenant (nightmare), I will never be without a prop manager for the signed forms/legal protection alone, let alone the day -to-day that she manages.

      In addition to regular repair and maintenance, which I have found is ALWAYS more than we thought (including the surprises, like a water heater that busts at 5:30pm on a Friday so you’re paying OT for it to be fixed), there are some fixed expenses to consider. For us, since we have other assets, we formed an LLC for the rental, so should something happen with a tenant, they can’t come after our other assets (and our business). That LLC has its own annual tax filing, and we pay a City biz license fee. We just refinanced our mortgage, as we were at a 4.25% interest rate from 2016 (investment mortgages are always higher than primary loan mortgages, so another thing to consider, expense-wise; I think our new loan re-fied in the low 3s; our primary re-fied at 2.29%!), and the savings will help for sure with the monthly prop manager fee (pretty much takes care of that monthly expense, which is great).

      Also, cash on hand: our tenants filed for hardship during the start of the pandemic, and short-paid rent by $2700 over three months. Thank goodness my prop manager was diligent with checking assets (their father, who co-signed, had a healthy bank account balance), and they made up the short-paid rents in three months after, as agreed upon.

      All this being said, the market in San Diego is so hot right now (it actually kind of disturbs me how high properties are selling for right now), so that’s why we’ve held on to the home. We bought in 2013 for $348k, and now it’s unheard of to find anything decent under $400k. The median home price in SD is around $640k (and our home would be a bit above median), so we are definitely in a good position, as long as the RE/rental market stays strong.

      We just looked into possibly selling to upgrade (buy a multi-family unit), as that’s what my father did, but decided we didn’t want to sell high/buy high. We also looked at taking the tax hit and cashing out, but that tax number was hard to swallow so we are hanging on.

      Actually, here’s another RE lesson that’s worth listening to: my parents took the profits from their first home (we’re talking 50 years ago), and the continued to “trade up” – they went from a 2-unit home, to a 12-unit little apartment complex (I remember as a kid going there while my dad did maintenance), to a commercial property in SD, to finally a triple-net out of state. They own a property in AK that’s a Taco Bell, and they get a check for $8k every month and to date my Dad has done nothing more than sign paperwork.

      If you have the cash, consider a triple-net. On the flip side of that (and wow I’m sharing a lot here!), my father also owns a commercial property in San Diego (where I rent space for my biz). Well, the operation next door was a gun shooting range (tenant), and it was a triple-net lease (which means the tenant is supposed to take care of everything for the property). So shooting a gun releases lead, and over the past two years, we have been dealing with the discovery (and now decontamination) of MAJOR lead contamination on our property. It’s been a NIGHTMARE. The gun range prop was really contaminated, and our property, to the south, is hard hit too. It’s also been traced to our entire block, and now the County is making them test even furher – it’s like a never-ending nightmare for them. Thank goodness the property owners of the gun range site have deep pockets – they’re going to spend more than $13 MILLION cash to get out of this mess, and about $4M will be on our property alone.

      So another note is to be careful who you rent to, residential and otherwise! Stay legally protected, and have cash on-hand. And buckle up, because it’s always more everything than ya think!

      Reply
      • Mr. Money Mustache October 31, 2020, 1:12 pm

        Wow! Thanks for sharing that story Karen. Your range of business experience and expertise is very broad, which surely helps in a complicated rental environment like California.

        The lead decontamination thing is a great cautionary tale that I’ve learned myself too: sometimes laws get locked in that create disproportional costs relative to any potential hazards. Asbestos is one of them – statistically not very dangerous at all as long as you wear a respirator and put it into plastic bags, but Colorado requires an elaborate and expensive space-suit operation to have it removed, just because the laws happen to be passed that way. Meanwhile, people can drive around and create unlimited amounts of unregulated and far more hazardous pollution in diesel trucks – just because there doesn’t happen to be a law against that!

        The lesson (to me, anyway), is understand the laws before investing large amounts of money. Stay on the right side of ethics (by not polluting), while avoiding being on the wrong side of the law (weird regulations that suck up any potential profits for little societal value).

        Reply
      • GingerMustache November 9, 2020, 12:13 pm

        Thanks for sharing Karen. I also invest in SD and was interested in your experience. TODAY the city council is voting to change even more building regulations to increase density. This will mean that many lots will be able to build up to their FAR (4-8) irregardless if their current multi-unit zoning. Your property may very well qualify to build a lot of units. Something to consider. Adding adequate housing is very much needed in SD and can be very profitable.

        We submitted plans and started building when after the upzoning in 2016 then parking regulation change in 2019 and just started building our eco-friendly duplex. Super fun!

        Reply
  • Philippe Di Pizzo October 23, 2020, 11:21 am

    Great story, I wish I had thought about that when I was younger. In my case, house hacking meant, in the past seven years, being a secret office hobo (the conditions were just perfect), full-time house/pet-sitting, and van/truck life in a little city in northern Canada where the average rent for a 1-bedroom apartment in a drug-dealer infested building goes for $1,500 and over $2,300 in a nice condo…

    Reply
  • Jackson Mayer October 23, 2020, 11:35 am

    My wife and I just built a brand new home in Sarasota Fl where home prices are fairly expensive. We paid, 360k to build our house, and our mortgage comes out to $1,450/month (includes escrow). We specifically built in an apartment type studio above our garage to rent out on airbnb. We have a door from the studio into our upstairs hallway, but we have it dead bolted while guests are in. We bring in around $2k/month, just renting that single room out. So, we got a brand new home, and are being paid to live in it. Cannot recommend it enough.

    We actually have a podcast out now (making it with the mayers) where we discuss early retirement. We have an episode on “scare-bnb” (horror stories from it) coming out 10/26, and on 11/2, we will have an episode all about the great parts of Airbnb. We did the scary stuff first in honor of Halloween :)

    Reply
    • Astrid C Chapman October 23, 2020, 4:04 pm

      We did the same. We built a house on the coast in Western Australia three years ago. To get the best ocean views we needed to go up but with only two of us living in the house we didn’t want a large home so we included an apartment downstairs which we can rent if we choose. It’s currently empty but we have rented it out for $1000/month for six months in the past. We’re FI and I’m still working so at the moment not so motivated to maximising for income but we’re slowly turning towards renting the space on Air BnB. Our neighbour did exactly the same thing, he rents his apartment on Air BnB and makes about $20,000/year. I’d also like to explore home swapping with the space, post-COVID when I retire and we can travel again.

      Reply
    • Katie Camel October 23, 2020, 7:13 pm

      This is brilliant! If I ever build a home or consider buying another, I’ll definitely consider this option of building a separate room/area to rent out, even on Airbnb.

      Reply
    • Peter G October 26, 2020, 2:31 pm

      Specific to your county: https://www.heraldtribune.com/news/20180618/is-airbnb-worth-it-losing-property-tax-breaks-can-be-costly

      The potential to lose both the homestead exemption in my real estate taxes and homestead protection from third party creditors is primary reason I’d never rent out any portion of my primary residence in Florida. Additionally, I’d be in default under my mortgage and homeowner’s insurance policy if I rent to anyone that isn’t party of my immediate family.

      Reply
      • Astrid Chapman October 28, 2020, 3:35 pm

        In Australia we don’t get tax benefits for mortgages on our principle residence. We can get some tax benefits from the expenses related to renting out part of the house, offsetting the income.

        Reply
        • James November 21, 2020, 6:08 pm

          We bought a small farm with a family trust and have all expenses deductible. We rent out a granny flat and some sheds. Unsure if this works out well for a residential home though and the capital gains tax is a big factor.

          Reply
      • Jackson Mayer November 2, 2020, 7:41 am

        I need to do a tad more research, but, I was looking up some more recent articles and it looks like you are able to homestead the portion of your home that isn’t rented out. The Florida supreme court ruled on that in 2020.

        Reply
  • Kalem Lenard October 23, 2020, 11:53 am

    My wife and I bought a funky old house ten years ago that was actually two old houses connected with a small hallway. It took us a few years to realize that we could actually rent out the back “house” and started renting it to coworkers looking for temporary housing. This turned into listing it on Airbnb which now pays the mortgage and then some. The extra cash allowed us to invest heavily in index funds through retirement accounts, buy a few more rental houses, pay down mortgages, and now are on the cusp of retiring in our early forties. We still feel like we are able to spend quality time with our two kids and have time to recreate and go on vacations. House hackers for life.

    Reply
  • AlaskaAmber October 23, 2020, 11:54 am

    Hi MMM!

    Your blog was recommended to me just before I graduated college in 2014. Prime time – here it is 2020 and I’m happily married to a very handy hubby who is also money conscious. Together we’ve fixed up and turned 2 homes into rentals, the second of which we turned into two units! Between the aggressive leveraging we’ve done in real estate, hard-core fixing up and a little strategic luck in said real estate, and investing the rest in index funds and company matching we are on track to start a family soon and take permanent parental leave!

    That’s not to say we won’t continue working for ourselves and our passions. We’ve enjoyed these projects and I’m sure we will continue picking them up here and there. My husband is passionate about mountain biking and is in the process of starting a non-profit trail building construction company.

    Life is excellent. Thank you so much for sharing (and continuing to share) your efficient and optimistic point of view that’s allowed us to really take life by the horns and enjoy all it has to offer!

    Reply
  • Daniel Eikel October 23, 2020, 11:56 am

    You guys are old enough to have been around in ’09, that much leverage is risky. You also carry very localized risk you don’t talk about. Yes this can work, but I don’t think this is a prudent way to go for most people and it sure is not for the beginner in the FIRE journey. If NINJA loans and subprime mortgages are back to this degree already, we are heading to an ’09 repeat. Cheap money is overall not a good thing to have….

    Reply
  • Brady Jadin October 23, 2020, 12:01 pm

    Another great article, Pete! For those into podcasts, “Bigger Pockets” (no affiliation) shares insights into how to calculate real estate financial ratios

    Reply
    • Mr. Money Mustache October 23, 2020, 12:37 pm

      Indeed! There is lots of overlap between the Bigger Pockets and MMM worlds, partly because we’re both based in Colorado. We have posted on each other’s sites quite a few times over the years, CEO Scott Trench has given a talk at HQ, and Craig’s previous job (and probably inspiration for this bold strategy) was working in the finance department of BP. Plus, there are lots of friendships between the two circles of people.

      I like to share these stories because I am a big fan of their work.

      (note: we have no financial connections with each other so I feel there is no conflict of interest in doing so)

      Reply
  • Jim Grey October 23, 2020, 12:04 pm

    When I married my wife she owned two houses, one she rented. I became an Instant Landlord. And I learned that I really freaking hate being a landlord.

    We sold the house last year, long complicated story. I have never been more relieved over anything in my life.

    Reply
    • Janson October 24, 2020, 8:00 am

      Exactly. My house hacking consists of buying and moving into a place, adding a bedroom by any means necessary and selling it. In my Mid-Atlantic market, “Investors” are willing to go cash flow negative for a property, and because renting out is so hyped, sales prices are high. Flipping beats being a landlord here by huge margins especially considering risk. Will admit that the unconscionable tax subsidies for landlords appeal for those with a large separate income. Hope Colorado isn’t in a rental bubble because of Covid. Sure looks like too high a rent to household income to me, but these things can keep going a while.

      Reply
    • Craig Curelop October 26, 2020, 4:59 pm

      It’s not for everyone. But if you can get a property manager in there to take over most of the headaches, the returns are worth it for most.

      Reply
  • ErikSwede October 23, 2020, 12:10 pm

    In Sweden this is much harder to do. The bank only count your salary when checking how much you can loan. They do not include any income from the properties. Having more than 2 houses is not feasible. Also minimum of 15% downpayment.
    Buying and renting as a corporation is only option to go big, since then the rent counts when taking loans. But then the bank demands 25% downpayment which slows things down.

    We own our house plus an apartment, so we have some extra income. Interest rate is only 0,8% after tax deduction, which is nice though.
    With very high tax on salaries but fairly low on capital gains, my way to FIRE will mainly be thorough the stock market.

    Reply
    • meatro October 24, 2020, 4:00 am

      Thanks for mentioned the Swedish situation.

      > for the other internationals:
      the regulation where you live have a HUGE impact on this calculation and consideration. Be sure to research accordingly.

      For all, as an FYI, I live in Germany. The regulations encourage people to buy and rent out, because there is no capital gains tax after 10 years for properties. The 10 years and the 0% are there to prevent wild speculation / bubbles / make housing more affordable. Also, there are no tax advantaged stock accounts and Germans love things they understand, so it’s the main investment vehicle here for many.

      You can get a 100% financed loan from the bank (you will pay 10-15% of the asking price in costs) and the rates are currently low. 20% is standard for the lowest rates.

      You can get tax write-offs for depreciation, your mortgage interest and other landlord expenses.

      But because everyone is doing it and so many people rent, there is market equilibrium which does not really favor landlords on the renting itself. In the end, you make money, but it is often the exact same as a long-term ETF and only because of the appreciation of the property over time. During the 10 years of owning, you are often losing money month for month. I have been looking diligently in cities for a deal which is roughly that of an ETF after inflation considering all aspects (it is one hell of a spreadsheet) and have found absolutely ZERO properties that do this.

      The renter rights are the final regulatory curveball that it feels is absent in the comments so far. The government assumes that landlords are financially better off than renters, always. Because of this, the rights of renters are phenomenal. I am a renter currently, my landlord wants to raise the rent (which he definitely should not do), and so he just can’t. He can’t evict unless I break specific rules like not paying anything at all and even then this would take a year and require an expensive lawyer. Even if that happened, there is rent limitation in my region and he would not be able to rent it out to someone for more anyway.
      This adds more risk for any would-be landlords and requires a lot more knowledge of the applicable law.

      Reply
  • Dr. Derek Austin 🥳 October 23, 2020, 12:21 pm

    Nice article! I did the same thing with Airbnb, except I didn’t have to do any of the “hacking” — it was already split into a duplex. Airbnb increased the apartment rental income from $1000/mo. to $2500/mo., and renting out two spare bedrooms upstairs brings in another $1000/mo.-$1500/mo. So the house (which costs about $2200-$2500/mo. with 3% down mortgage, utilities, taxes, etc.) brings in about $1500/mo. to live there, and much of the expenses (5/9ths of the liveable rooms) are tax-deductible, including depreciation, mortgage interest, and utilities.

    Compare that to not-house-hacking: $2500/mo – $1000/mo. in basement rental income: $1500/mo. expense instead of income. And for comparable houses in the neighborhood, they pay $2500/mo. for the same house in the same neighborhood. Airbnb was critical for affordability, too, since the house needed $40,000 in repairs (sewer, HVAC, laundry, etc.) in its first 3 years.

    I have since gotten divorced, but the $375,000 house is now able to paid for by one salary (my ex-wife’s) and the Airbnb without a second full-time income.

    Reply
  • earle.b October 23, 2020, 12:30 pm

    We’ve been “house hacking” our house here in North Vancouver BC for several years now. We live in the basement suite and we rent out the main floor. Lots of houses here rent out the basement suite but we get much more out of renting the 3brm main floor. The basement suite needs a full reno to bring it up to it’s full potential but as the owners living in it for free in one of the most expensive zones of the country we’re content to live with it’s short comings while someone else pays 100% of the carry costs on the house.

    Reply
    • Dana October 23, 2020, 1:39 pm

      Curious, when did you buy? I’m in Vancouver myself (renter).

      Reply
  • Mack Maier October 23, 2020, 12:38 pm

    I do this in Longmont as well. I foresee Longmont getting wildly more popular in the coming years.

    Reply
    • Mr. Money Mustache October 23, 2020, 12:52 pm

      Really? I feel it is so expensive already, considering how early we are in the physical renewal process.

      Although your Longmont Climbing Collective has certainly become an amazing jewel and sparked up a big part of our social scene already – thanks so much for starting it Mack and I hope you are doing well! (https://www.longmontclimbingcollective.com/)

      Reply
      • Mack Maier October 24, 2020, 8:11 am

        Thanks Pete,
        Yes, very expensive already, but there seems to be the start of a real exodus from high net worth and even regular working folk from California, and a lot of them seem to be landing on the front range. When I look at climate science studies for the next 20 – 40 years, I can’t help but notice that the outlook for most of the Western half of the country just doesn’t look great. Colorado will have its water and forest fire issues, but it will seems to fair much better than many other western states. That and with it’s more favorable income tax and property tax rates, and not to mention the 300 plus days of sunshine, I just imagine it getting much more popular than it even is today. You’re totally right It is absurdly expensive already, but compared to Boulder and Southern California it’s still a bargain, and I think more and more people are recognizing that.

        This is a fascinating and equally frightening take on the future of the US and how our communities might be affected if we don’t begin taking climate change seriously.

        https://projects.propublica.org/climate-migration

        Reply
      • Clayton Sneider October 26, 2020, 4:33 pm

        Another Longmont dude here…Yeah we bought our house in SW Longmont in 2009 for $260K and it is worth $550K to $600K now. We purchased two rental properties in Longmont about five years ago and they both appreciated by six figures each (with sweat equity added on all three houses). I am not nearly as motivated to buy real estate in this area as I was 5 to 10 years ago. I just don’t see many cash flow able properties available. And I don’t see crazy high appreciation rates in the future. With that being said, if you are willing to house hack or do AirBnB, I am sure you can make money.

        Reply
      • Stacy October 26, 2020, 8:02 pm

        I agree with Mack, even if it is speculative. We are selling a townhome in Lafayette in exchange for “hopefully” a multifamily situation in Longmont with our short 1031 window. Longmont might be expensive for the property, but comparatively, it’s still cheaper and way better value than the surrounding areas, IMO. In fact, I’d probably argue it’s just better, not just better value. And that secret’s out of the bag with the community winning national awards. When that happened with Louisville, all the people with families moved in with their money. I don’t expect a Louisville slugger swing or anything, but I do think that’s inevitable. And with that, comes a bit of a double edge sword with housing costs. Although, this is highly speculative :)

        Reply
  • Ben October 23, 2020, 12:40 pm

    Great article. I was able to retire at 45 (and my wife at 35) due to a variation on house hacking – buying places at the top range of what we could afford while we had the salary, renting them out each time we moved, and then moving into a very cheap house ourselves. Some of the places we bought dirt cheap because they needed extensive renovation, so we now have a lot of DIY and dealing-with-contractors experience to boot.

    One thing I wonder though is how Craig was able to pay 5% down even when he never planned on living there (e.g. the third house in 2019). Is he being less then truthful with the lenders? :)

    Reply
    • David D October 23, 2020, 1:48 pm

      It explicitly said he lived in the first two, at least until he bought the next property. I’m assuming the same was true of the 3rd property.

      Whether he also did this with the 7 properties purchased in 2020, I’m a bit more skeptical, but the down payment details there are also thin (but hard to believe these are at a higher percent down than the first 3 houses).

      Reply
    • Craig Curelop October 26, 2020, 5:02 pm

      Hey Ben,

      Thanks for the comment! I actually do live in each one. I just move each year. In this article, we assume “rent savings” as a number that adds to your cash flow… because money saved is money earned. Actually… money saved is more than money earned, but that’s a topic for another time!

      Reply
  • Flashwit October 23, 2020, 12:49 pm

    Yes, this works until something like a pandemic comes long and you suddenly lose half your renters. But never mind that.

    I know that my position here will be seen as extreme but I believe landlording like this is exploitation of a basic human need, namely shelter. Housing stock is bought up by the privileged who have enough capital and then used to extract the little wealth that poorer people have available to them, thus trapping them in a cycle of never being able to build up enough wealth to own their own housing (if that is what they desire).

    I believe what this guy is doing is highly immoral, because I believe it is immoral in general to profit off of housing. But my position is extreme enough that I believe private landlords should be abolished so I don’t expect much agreement here when landlording is such a popular way of powering retirement in the FI circles.

    Reply
    • Mr. Money Mustache October 23, 2020, 1:03 pm

      I think your intention is good with these thoughts, although we probably disagree on the most efficient way to meet these needs.

      If there were no landlords, what would be your preference on who would provide the rental housing? Would everything be public housing?

      In my opinion, the resourcefulness of people like Craig – taking decaying properties and having the spirit to fix them up and then compete for tenants – is a good thing. He is taking his position of advantage (a salaried job and lots of business skills), and using it to create a product (nicer apartments), that was scarce before.

      If more people do it, rents will go down because of a growing surplus of units. Of course, this initially drives up the price of houses, but that should in turn trigger the construction of more housing, because it suddenly becomes more profitable to build. And even more importantly, the housing will be built in smaller, more central units because it will be catering to rentals instead of inefficient single family housing.

      Which is exactly why the housing in central cities tends to gradually upzone into mostly apartment buildings, exactly as it should be in my opinion.

      Of course, the final part of this puzzle is that you need to make housing REALLY easy to build – minimal zoning and setback rules, no NIMBY-ism from neighbors, no restrictions on density. And eliminate car dependence and traffic by changing road planning, but that’s a whole blog article in itself! https://www.mrmoneymustache.com/2017/02/10/the-happy-city/

      Side note: I have not seen any data indicating that the pandemic has decreased nationwide demand for rental housing, although it has shifted it around somewhat as noted in the article. Do you have a better source I should review?

      Reply
      • Deborah October 23, 2020, 6:56 pm

        Dear Flashwit, But, like many people, I want to be a renter right now! I retired this year, having previously sold my house with plans to travel upon retirement. I still wanted a home base, but with absolutely no maintenance responsibility, and with the expectation that I will relocate to another state in a couple years. My landlord built this duplex two years ago to make money. I am happy to pay a fair rent for 900 square feet of energy efficient, attractive construction in a location where I can walk to most of what I want.

        Reply
        • Flashwit October 24, 2020, 9:07 am

          Yeah for sure, I know not everyone wants to own. My position is simply about rental stock being made available by the state with no profit motive in mind. As well as making the rent subsidized for low-income renters if necessary.

          I suggest that it has to be very thoughtfully done with a high bar for minimum quality so that you don’t end up with stereotypical soviet apartment bloc style housing.

          Reply
          • Tropical October 24, 2020, 3:10 pm

            I am one of the persons that benefited from Craig’s business model. Renting one room in a nice place near my workplace, while saving a lot. Renting has so many benefits that most people often overlook. In my case, the savings allowed me to add a hefty down payment to a beach apartment that is currently making profits for me.

            I don’t understand why you think that is highly immoral. If anything, he is providing for additional alternatives for housing.

            Reply
          • Paul in Newport October 28, 2020, 10:43 am

            I recently lived in the Netherlands where this idea exists in a certain form. It’s the age old market role discussion, but what I can tell you is that I would hear stories of excitement that after 8 years on a waiting list, someone is eligible for the government housing program (and prices are really expensive in Amsterdam). The reason there is a waiting list is that when you don’t allow price signals to guide the market (what MMM said), or further restrict the market with too much regulation (subjective!), the market simply cannot respond to the demand. So while these people were expressing such excitement in their stories to me, inward I felt frustration for them that they couldn’t yet see this is a natural outcome to exacerbate the very issue they were viewing the government support alleviates. While I don’t at all agree with his conclusions (despite his substantially superior expertise to my own), given your comment you might enjoy reading “Talking to My Daughter About the Economy” by the former Greek finance minister.

            Reply
            • Mac October 29, 2020, 5:07 pm

              The long waiting list is for the cheap government controlled houses, that are specifically for the poorer people. If your income is below a certain bar, you are eligible. There are also privately owned houses available for renting, but these are more expensive. So, basically, if you can get into a cheap house, that’s great.

              The thing is, it’s difficult getting people to move out when their income rises above the bar. They don’t want to leave due to the cheap rent.

              So, you have people wanting the move in, while others don’t want to move out, while the amount of cheap houses is limited. That drives up the waiting list. The government takes measures for better throughput, but it’s not yet there.

              Reply
      • Patrick October 24, 2020, 8:08 am

        Washington state currently has an eviction moratorium through the end of 2020. That’s a good example of a big risk (related to the pandemic) that you can’t predict but can hurt a landlording strategy. Not everyone has stopped paying their rent of course, but one can imagine there must be some properties getting trashed where the landlord can’t evict and there’s no way the renter is going to be able to come up with 9 months of rental payments in Jan 2021.

        Reply
      • Kelly Monaghan October 24, 2020, 10:21 am

        Another piece of the puzzle missing from this account is the explosion of Airbnb, which is seriously distorting the rental market in many cities and towns and reducing the availability of affordable housing. MMM’s thoughts would be appreciated.

        Reply
        • Mr. Money Mustache October 31, 2020, 1:23 pm

          I happen to LOVE Airbnb, and think it is a great way to allow homeowners a new entrepreneurial opportunity. (And also a great way to find fun places to stay when I travel myself).

          Instead of thinking of the effects as “distortion”, I think of it as “meeting an existing pent-up demand.” As long as you don’t truly distort the market by limiting the construction of new housing – which often means replacing older low-density single family stuff with higher density, taller structures.

          I also happen to think that airbnb rentals are a net force for good in a neighborhood. French Quarter party districts aside, in general they bring curious, enthusiastic people to your neighborhood who then go out and support your local businesses and liven up the scene.

          Since I live within walking distance of downtown, there are many such properties in my own neighborhood, and I enjoy welcoming those guests when I walk by those places on the street. I have also rented out my own house for this purpose, and will do it more in the future.

          Reply
          • Kelly Monaghan November 5, 2020, 1:57 pm

            I’ve used Airbnb myself and, looking back, find the most enjoyable experiences were those in which I was staying in someone’s spare room and sharing meals and conversations with my hosts. I have no issue with this use of the platform. The apartments I stayed in that had been taken off the local real estate market were dreary and soulless and did nothing to bring me closer to the local population. And seeing old town Dubrovnik turned into a Disneyland for foreigners broke my heart. We will agree to disagree.

            Reply
      • francis October 24, 2020, 1:12 pm

        Exactly
        Without people like Craig rents would be higher as there would be fewer rental properties/rooms etc available as these places would remain derelict.

        Reply
      • Sendug October 26, 2020, 7:02 pm

        All reports I’m seeing is that something like 85-95% of people are still paying their full rent, and most of the remainder are at least making partial payments (what they can afford). I understand the concern there, but it’s been much better than expected.

        And I mentioned it above, but banks are suggesting owners to hold 6 months’ rent for any new purchases. If you can’t find a tenant in 6 months then that could be a problem, but that’s pretty extreme. And most Mustachians have ample personal savings for worst case scenarios. We are more resilient than most.

        Reply
        • Mr. Money Mustache October 31, 2020, 1:27 pm

          Oh, yes absolutely. I think that everybody should hold FAR more than six months of rent in an easily-accessible reserve fund (which could still be invested in index funds).

          You should have more than a year’s worth of living expenses before you even go so far as moving out of your parents’ basement and/or buying your first VERY cheap used car. And with a 50% (minimum) savings rate, you get an extra year’s reserve for each additional year you work.

          So by the time you get into real estate investing, you should be sitting on several years worth of expenses. No form of leveraged investing OR spending should be done on the bleeding edge of insolvency, which I would define as having less than five years of spending safely stashed away.

          Reply
      • Cameron November 6, 2020, 3:06 am

        I wouldn’t go as far as Flashwit. I’m a landlord myself and don’t consider it fundamentally immoral but it can be immoral depending on the market conditions. I live in the UK where housing is stupidly expensive and is extremely small by worldwide standard (I see Youtube videos of ‘tiny’ 50 square meter apartments and laugh at all the space they have).

        Many people have used this strategy in the UK and it has lead to a glut of what we call HMOs. Lots of young professionals who live in 4 bedroom apartments with no living room but are still paying 30-60% of post tax income. And I’m talking about folk who are software engineers, doctors, lawyers etc. And there not even nice apartments a lot of the time.

        You’re correct that the route cause is lack of new affordable homes but fixing that issue takes a long time. If in the meantime you’re getting wealthy using tactics that create lower housing stock then you have to look at the morality of what you’re doing.

        There’s a similar issue with AirBnb. If you live in a tourist city (I live in Edinburgh one of the most touristy cities in the world, top 5 by most rankings) then it creates a ton of additional demand with minimal or ignored regulation, pricing out the people who actually live there and destroying neighbourhoods. It’s a case of all things in moderation. And I am talking about full apartment Airbnbing here not spare rooms, which are far less damaging.

        None of these strategies are fundamentally immoral but they can be in context of the market. And it’s extremely slow and difficult to change those conditions. I’m sure Craig did this in moral way, but many people deploying this strategy in the UK have created a hellish conditions for many folks. As relatively wealthy well off, well (self)educated people we have moral duty to consider how our actions effect our communities.

        Reply
      • Michael November 9, 2020, 7:31 pm

        MMM.

        I completely agree with your assessment about how housing actually works. The BIG PROBLEM in places like California is the NIMBY ZONING RULES! Average people simply do not understand that all the land use and zoning restrictions are what drive up the cost of housing here.

        Reply
    • Buzz Lightyear October 23, 2020, 1:34 pm

      I’m with ya pal.

      The money quote from the blog post: “…becoming a landlord is usually surprisingly easy, and also ridiculously profitable.” Housing is also referred to as “a fundamental human need” later on in the post. Making “ridiculous profits” on a “fundamental human need” is…quite obviously extractive and exploitative.

      I get why people do it. And I think a lot of landlords out there genuinely do think they’re providing some valuable service or something. And maybe some of them are, in relative terms. But the concept as a whole turns me off so much.

      Reply
      • mountainmon October 24, 2020, 10:55 am

        yeah, but dont forget..the reason for outsized gains in real estate isn’t really because landlords exploit by charging crazy rents (although that could be the case), its the leverage and absurd low cost of borrowing. With just 5% down, you get control over 100% of the appreciation and income potential of the property. Even buying stocks on margin has a limit of 50% and fees are typically in the hgh single digits, sometimes over 10%..The only other asset class where you can get real estate like leverage that I know of is in futures/options..and housing much easier to understand and less risky .

        Reply
    • MarciaB October 23, 2020, 1:48 pm

      One option for finding a middle ground here would be to offer a rent-to-buy situation to tenants. As a landlord you would then be in the position of helping someone get a leg up. I would imagine it would improve the landlord/tenant relationship because all of a sudden the tenants would see themselves as owners (who generally care more for a property than renters do).

      Reply
    • VeganBetty October 23, 2020, 3:05 pm

      What is the bigger crushing issue to homeownership is terrible wages. Until we have an aggressive policy nationwide to push for living wages, I don’t think it’s at all fair to lay this at the doorstep (see what I did there?) of landlords.

      Reply
    • Ilana October 23, 2020, 3:55 pm

      I agree, Flashwit – while I’m not of the opinion that “there are no good landlords” (I’ve encountered a couple), I am firmly in the camp that believes shelter is a human right, and housing should not be commodified and used as an investment vehicle. Being a landlord should be seen as providing a service, but too few landlords see it that way. This post lost me as soon as it became clear that the key to this guy’s success was profiting off apartment rentals.

      I don’t have an answer for the question of how housing should be provided, and I’m not willing to go as far as abolishing property ownership. And with property ownership out of reach for so many, we will need someone to provide rental housing – and the government will not be sufficient.

      But on a broad level… This is unethical. It’s unfortunate that this sort of “me first” thinking is so prevalent in FIRE circles, and that so little consideration to others’ basic needs factors in to people’s FIRE planning. As far as I’m concerned, that’s an “I’ve got mine; f*ck you” attitude, and seeing MMM tout that kind of behaviour as aspirational is a real turnoff.

      Reply
      • Joseph October 24, 2020, 11:26 am

        The absurdity of many of these posts is stunning. As I asked the original poster, please tell us in your moral universe exactly what is a “moral” investment? How about the farmer? Is he ok – or is he only okay if he charges what you consider a fair price – not what he and the buyer consider a fair price, but what you consider a fair price. You are essentially arguing for a completely socialist system as almost anything comes under the rubric of basic human need. Just be honest and say you want to abolish the capitalist system. That way folks can all retire early and live off the government. I’m pretty sure it doesn’t really work out that way in the end.

        Reply
        • Phil October 24, 2020, 9:45 pm

          Both perspectives on this subject are valid. For me, the difference that divides the two is sweat equity. Are you adding societal value or are you just extracting financial value? If you are simply purchasing properties for the purpose of turning around and renting them, I would contend you are just extracting financial value on the backs of others. If however, you are purchasing homes in disrepair, putting your time and energy into giving them new life and improving the overall community, then you are clearly adding societal value. Just be careful not to gentrify in the process.
          Regarding basic human rights, there is no such thing, in so much as ‘we’ as a society collectively agree that there are. Same is true for laws. We agree not to steal each other’s goods. We also agree to work and contribute to society in turn for money which we then trade for those various goods.
          So ask yourself, are you adding societal value? More nuanced; is the financial value you are extracting proportionate to the societal value you add. Would 8/10 strangers agree?

          Reply
          • Joseph October 25, 2020, 9:56 pm

            Please. If only we all went back to subsistence farming and pre-industrial revolution economies, maybe that would satisfy the ridiculous standards being espoused here.

            Reply
            • Phil October 26, 2020, 5:28 pm

              Your Welcome. I’m glad we could find common ground! You don’t often find people who are willing to espouse to ridiculously high standards but we all know it’s a prerequisite to Mustachian Badassity. Everyone else deserves a good wake up punch in the face.

              Reply
              • Joseph October 26, 2020, 7:57 pm

                What you do find frequently (see your posts) are people who moralize and virtue signal from a keyboard without any real understanding of basic economics. You can do better. The first step is better educating yourself. To actually embrace, as you do, returning to the poverty that existed in most parts of the world pre-industrial revolution cannot be a serious position. And it is impossible to find an educated person that actually embraces a return to subsistence farming. It is the equivalent of advocating mass murder by killing hundreds of millions of people through malnutrition and lack of food. It is neither an intelligent nor a moral position.

              • Phil October 30, 2020, 10:01 pm

                The purpose of life is to be happy.
                The purpose of work is to create.
                The purpose of money is to have enough money (to be happy and create).

            • mary stone October 27, 2020, 12:08 pm

              kinda like Afghanistan

              Reply
    • Mary U October 23, 2020, 9:45 pm

      I can see your point too, but in most cases these landlords are fixing up property. From everything being described here, decent housing is being created where there is a need. It is a fair exchange and both parties are benefiting. Much worse are situations like those with Jared Kushner and similar corporations as described in the Netflix “Dirty Money” series where tenants are cheated and exploited. Unfortunately, that situation is becoming the norm in many areas (like near me in Memphis) when it comes to rentals. What is being described here is nothing like that.

      Reply
    • meatro October 24, 2020, 3:41 am

      I had an initial moral cringe while reading this article, too, but after some thinking, this feels unwarranted and for me, hypocritical.

      Renting doesn’t have to be exploitative. There are other posters here who do it with a community building mentality and fair housing.

      I myself am a renter because purchasing is not good for me right now (long-term flexibility). No renting seems to not be sustainable on a large scale.

      There is no government in the world which doesn’t allow these kinds of loans or this kind of business, even ones which are highly socialized. There are differences in better regulations and renter rights. Where this is the case, people cannot normally do what is outlined in this article which does make me feel that it is a bit of a reach. It would either be not fiscally possible (limits on borrowing or rent ceilings to keep rents livable) or just too risky (i.e. renters who you cannot get rid of even if they are scoundrels). Voting for people who will push for better regulations is something we can always do, and is within our circle of control. Again, acting in the interest of your tenants is another way to be the change you wish to see.

      My other thought here as someone seeking FI is about the main alternative: stock ETFs, even on an ESG or SRI index, not to mention anyone with specific REIT overweighting. Most companies manipulate people so they consume more (sometimes in someone’s best interest, often not). They may cut expenses at the cost of quality of life to their own employees. Their entire goal is to profit, and I profit accordingly. It is not exactly moral high ground. It is easier to ignore since there are more degrees of separation between me and someone eating crappy fastfood regularly or someone working there. And because it is being a part of the global system (bystander effect). I rationalize it by thinking if the system changes then my ETFs would change with it and the system will change in time.

      In my mind, the finance of FIRE today is to a certain degree inherently about a personal gain at the relatively cost of someone else, somewhere. The real moral bonus comes if you are using your gained means (freedom, financial ability, etc.) to make meaningful contributions to others and positive change.

      > so after some thinking, I don’t see house hacking as immoral even if it did rub me the wrong way before some reflection.

      Appreciate the others’ posts on this topic, that rounded out some mental gaps I had.

      Reply
    • Joseph October 24, 2020, 10:58 am

      Of course, under this logic it would be immoral for companies to profit off of food, cars, bikes, energy and any thing that might be considered a basic human need. The guy selling hot dogs out of a truck on the street is exploiting people under your logic. So is the immigrant who runs the corner convenience store. How about all those companies that match people online for love? They are taking advantage of and making money off of a basic human need. I would be curious as to exactly what you consider a moral investment. There can’t be much left that fits within your moral structure.

      Reply
    • Raeon October 25, 2020, 2:27 am

      Hypothetically, if only the government can purchase homes to rent out at a “fair rate”, then they become the only buyer. With only one buyer (Uncle Sam) in the market looking for the cheapest possible buildings (to save the common man money!) the contractors would all switch to using poor quality materials/ under-skilled labor to make said housing. This in an effort to maximize profits. Ultimately this favors the huge corporations with benefits of scale importing massive amounts of cheap products from overseas.

      Now thousands are out of jobs they lost due to outsourcing most of the building work and materials. They can only afford the cheapest building available to them to rent from the government. This will be a low quality apartment or a manufactured home. With these cheaper homes in even higher demand more are built and the cycle repeats in an ever downward spiral.

      People also lose choice in what is available, lowering the overall morale of the populace. To combat this the gov’t makes a taskforce to monitor the quality of materials, and places tariffs on goods from overseas. They also make a whole new department of housing to approve more house designs offering people “more choice.” Now, to pay for the new department and the higher cost of goods that resulted from the tariffs the price of the crappy government homes increases. Cost to the end consumer ends up being the same or more than they were prior to outlawing private landlords; with less variety, and worse customer service to boot. We’ve seen how well the DMV runs.

      If you argue the best remedy for this new problem is to also nationalize the construction industry then you repeat the negative cycle for an entire second industry. Historically, nationalization leads to more jobs but lower wages. (See: Local governments sending 3 workers to dig a hole. 1 digs, the other 2 provide moral support) We already had low unemployment prior to the pandemic. Trying to give jobs to the remaining few who don’t want them and further lowering the wages is doubling down on an existing problem.

      Privatization of the market is imperfect and has its flaws but it is still the most efficient way to serve everybody. The government exists to provide “bumper rails” and keep the more radical practices from ruining the free market. These are things like racism, price gouging, unworkable wages, unsafe working conditions, etc.

      Historically, society flip flops regularly between Nationalization and Privatization. I personally take this as meaning neither is great. Given this, I’d rather modify the existing system than favor a vast overhaul that would just be switched back again later.

      Seeking change without understanding how we got here and where the potential changes could take us is reckless at best.

      Reply
    • RobRdam October 25, 2020, 2:15 pm

      Hello Flashwit,

      You believe landlording is exploitation of a basic human need. The same could be said about selling food for profit. Still nobody would argue that we need Sovjet style supermarkets. We are fine with the for-profit food suppliers, because competion keeps the prices low. If private landlords are abolished pressure to provide the best housing for a competitive price is gone, leading to less choice, less quality and perhaps even higher cost for renters.

      Reply
    • Mirabelle1 October 25, 2020, 5:52 pm

      I agree with you Flashwit. If this guy is able to make enough profit to set himself up for the rest of his life with just 3 years work, using other’s rental payments, that feels exploitative. I live in New Zealand and housing prices are insane here, I think average house prices are about 7-9 times the average wage. A generation or two ago they were only 2-3 times the average wage. I’m not sure if the reasons for this, it seems like part of it is a shortage of places for people to live, both rentals and owner occupied places. But I think a large part of it might be demand from people like this trying to make a quick buck off the backs of others. 50 years ago things were far more egalitarian here, there wasn’t the massive inequality that we have now like elsewhere in the world. I was told, although I don’t know if it’s true, that before the 80’s the banks were not allowed to give mortgages for rental properties, and people only got mortgages for their own homes (possibly only from the government or building societies or something, I’m not sure). So owning rentals was extremely rare and only the few who were rich enough to buy a rental outright did so. I think this kept house prices lower, and almost everyone owned their own home. Now it’s out of reach for so many. They de-regulated in the 1980’s then people started speculating on houses. But I am being somewhat hypocritical, I own my own house that I lived in for 5 years, and when I met my partner I moved in with him and kept my house as a rental. I feel torn about it, because we are benefiting from the rental income and it will set us up in retirement, but the tenants could be paying that money toward ownership of their own house. Also, it is my backup. If my partner and I split, I can move back into it with my daughter. I could never afford to re-buy something similar if I sold it now.

      Reply
    • Laura October 25, 2020, 7:45 pm

      I was relieved to see your comment, because while I don’t agree with all of your points, I do agree with some of the other replies here that the MMM community is not sufficiently community-minded. So much of the “let’s make the world better” sentiments that I hear espoused are really “let’s make the world better for me” in disguise. Providing “affordable” housing, “renovating” homes to provide denser living, and advocating for alternate transit sounds great on its face, but the devil is always in the details. What does affordable housing actually look like in any of these cities where case studies are provided (look at median income)? Are landlords buying up properties in transitioning neighborhoods and slowly inching existing residents out (aka gentrification)? How equitable and unbiased are these “tenant screening” methods? I cringed when I read another commenter mention that their friend, a landlord, would ask to see the prospective tenant’s current residence before signing them. What an intrusion of privacy! Not to mention, what are you basing your judgement off of?

      I came to this post because there was a mention of creating “affordable housing” in the intro. Didn’t see a lick of explanation as to how this person actually contributed to affordable housing in their community. There was no description of the community’s housing needs or any details provided to add accountability for this case study. Because the person fits the MMM profile, we’re supposed to assume they’re a good person contributing to social good? That they can somehow change the world by buying up rental properties and renovating with a little elbow grease of their own? Nah. I’d be more convinced if you could show me how this person is advocating in their community for policy changes to support affordable housing, volunteering their time to do intake with homeless services agencies, fundraising to support land trusts, etc. You know, with all of that time and money this 27 year old “retired” kid has.

      Reply
      • Mr. Corn Town October 25, 2020, 10:41 pm

        Agree, i had to check at the end of this post that this was written by MR.MM. The ideas espoused here including taking on debt with the housing risks of the past two decades, and ignoring the community effects to make the case for financial independence feel against what i come to expect of this blog that comes from a stoic, green, and thinking about the long term effects not just of ourselves but of our local society.

        Reply
    • Craig Curelop October 26, 2020, 7:17 pm

      What house hackers do is provide high quality housing for minimal cost. Where else can you pay $600 per month in a big city and still get the quartz countertops, nice yard, hardwood floors, etc. If you aren’t into land-lording, you actually may consider living in a situation like this so you can cut down on what likely is your largest expense… housing.

      The nature of the matter is. You live in the United States. The basis of this country is capitalism. I am sure you have no problem going to the grocery store to pay for food? I’d argue food is more of a human necessity than housing, yet very few people complain about the profits the grocery stores make.

      I suggest you read a handful of MMM’s blog posts, learn how to cut back on your spending so you can save up enough for a 3% down payment in your area.

      Reply
      • Joy October 27, 2020, 2:00 pm

        Grocery store profit margins are notoriously thin, actually. While there are definitely problems like food deserts and low wages that have too many folks struggling to eat decently, I would say it’s far easier to eat reasonably well affordably than it is to rent a decent place in a location that is conducive to a healthy lifestyle (short commutes, walkability, etc.)
        While I can get behind de-normalizing housing as a commodity, I think institutional investors driving the rise in overbuilding luxury apartments/making that the norm are the ones responsible for nuking the market. As for how to address that without abolishing private property? I think some sort of limit that allows your model but dismantles, say, Blackstone, would do just fine.

        Reply
    • Matt October 26, 2020, 7:40 pm

      I used to have similar qualms about the morality of owning dozens of homes when many people can’t even have one. But I realize the real reason I don’t want to be a landlord is that I’m terrified of the risk and effort involved, and the morality argument is just an excuse. If landlording were stress- and risk-free, I’d do it too, morality be damned.

      Reply
  • Seth October 23, 2020, 12:49 pm

    Although I enjoy these success stories, a snarky alternative headline could easily be…
    “Man uses a levered portfolio of undiversified assets and geographic concentration and outperforms the market”. It’s fantastic it worked out for him and does provide a viable path shortcut to FI, but hardly without an equal amount of commensurate risk. Respect the hustle though

    Reply
    • Craig Curelop October 26, 2020, 7:20 pm

      Thanks for the comment, Seth.

      I would argue that house hacking is actually one of the lowest risk investments you could make. Certainly in the real estate space, but arguably amongst stocks and other asset classes as well.

      What other investment allows you to live for free? The only downside is if you are unable to rent the rooms or units. In which case… lower the price and you’ll still be much better off!

      Reply
  • tomasjon October 23, 2020, 12:59 pm

    Great Article!

    I recently house hacked a duplex in Northeast Minneapolis that I bought for $280K in 2018 and while it’s not as passive as the stock market it’s been relatively hassle free thus far. Hoping to continue to buy more as the opportunities arise!

    For people interested in numbers here in the Twin Cities:

    Purchase Price 2018: 280K
    Initial Investment: 11K
    Monthly Mortgage Taxes and Insurance: $1574
    Vacancies, repairs, maintentance, etc: $425
    Current Rents: $2850

    Cash Flow: $850/month, $10,200/year
    Principal Pay Down: $480/month, $5,760/year
    Conservative Market Price Today: $345K

    For anyone debating between the nice $1,900/month condo rental downtown and a 300K single family or multi-family home nearby (that of course makes financial sense as a rental) I highly recommend jumping into the house hack. Worst case you hate it and move on, best case you don’t mind it, you see average returns on you’re rental, and you’re worth an extra million dollars or so after 30 years.

    Reply
  • Keith Miller October 23, 2020, 1:05 pm

    Such a great strategy! I started out focusing entirely on investing in index funds, but I’ve entirely switched to pretty much this exact strategy, except doing some of my units on Airbnb. I’m now up to two houses, each of them having two units, and about to break ground on building two townhouses in the backyard of one of my houses.

    This strategy has worked so well for us, and we should be able to be FI in about 5 years. It’s taking us a bit longer because the down payment on our townhouses needs to be 25% to get the construction loan, and we’re trying to do it fairly conservatively, by maintaining a large cash reserve. In addition, banks don’t trust Airbnb income, making it harder to qualify for loans.

    I have a question for Craig. I’m anticipating a hard time getting my next house, as I’ll have four mortgages (Each townhouse has its own mortgage). What mortgages have you used for your houses beyond #4? I hear that many banks won’t approve someone who has more than four mortgages, and I’m hoping to repeat this process and buy a new place in the spring.

    Reply
    • Spencer October 25, 2020, 9:54 pm

      Some banks may limit you to four mortgages, but if you talk to a lot of banks I think you will find ones willing to make more than four loans to an individual. I have heard some allowing 10 loans, particularly local community banks/credit unions. We have 7 mortgages. Seller financing is another way around this issue.

      Reply
  • Debby H October 23, 2020, 1:06 pm

    Mr MM, I would like to add a twist to rentals that we used, thanks to me reading your blog since 2014 (but this is my first comment). My daughter was going to Vet School and we decided to buy a townhouse for her, across the street from the Vet school (big step for us, to have 2 mortgages). Then another, nicer unit went on the market… and we bought it too! She moved into the nicer unit, we fixed up the first unit and rented it out. We stopped at 3 units, and have been landlords for 5 years. Renting to Graduate students is ideal! They are going to be professionals, and are concerned with their credit. They get loans to cover their expenses, so they always have money! My students give me post dated checks at the beginning of the school year, and I just deposit them each month. In addition, Daughter has finished vet school, and we sold one unit at over 50% profit. Thank you so much for writing this blog. We were able to help our child through grad school, and make money too.

    Reply
  • Liam October 23, 2020, 1:11 pm

    I recently stumbled on furnished rentals as an interesting niche. When I converted my AirBnB into a rental this year, I just kept the furniture and I was able to rent it for $300-$400 more than I would have with an unfurnished place. The profit is going to be WAY more than what I paid for the furniture.

    The key is choosing a consistent style and making it actually look nice (because your competition is going to be terrible, standard corporate furnishings).

    Reply
  • Vijay October 23, 2020, 1:12 pm

    First, I am glad that MMM is speaking about this topic. I am looking to buy my first house hack with my wife. I spent good amount of time this year learning about financial independence through real estate. I am an engineer and work in tech which has gone remote since this pandemic hit. This has given me location freedom (which is awesome). What will work for me is investing in a multi-family home. I can buy one in the city or in some touristy location like lake Tahoe. Live in one and AirBNB/short-term-rent other unit. Apply Craig’s strategy for building vacation house. Short term rental earns more money than traditional and someone like me can enjoy property at nice locations. What is your opinion on this strategy?

    Reply
  • Star2700 October 23, 2020, 1:17 pm

    Hi MMM and thanks for another awesome article! I’m a senior year high school student living in Stockholm, Sweden. I’m 18 years old and just went past 5k in investments after a productive savings effort (much thanks to your blog) since I had a job in my local bike shop during almost the whole lockdown. My question is: what do you think about renting out houses and real estate at a young age? I don’t want to wait till after college to use this profitable investment strategy. Is it worth taking a quite big mortgage at maybe 22 and buy a house to rent out?
    It is worth to mention that all college tuitions are paid by the government, as are the health insurance. And the study loans (also from the government) are at a lower interest rate than inflation. So I will probably have about 50k in practically interest-free student loans at that age.
    The income tax rates are at 32% though…
    Is it worth it or should I wait some more years? When is a suitable time?
    Many thanks for answer!

    Reply
    • RobRdam October 25, 2020, 3:36 pm

      Please understand you can’t translate the US stories one on one to your own situation. You will have different tax laws in Sweden, different renting laws (rent control), and different customs (in the Netherlands appliances are the responsibility of the renter unless they are built into the kitchen, carpet or other flooring is usually not provided etc). Please take your time studying the pecularities of your own market, and be prepared for the worst case so it won’t happen to you!

      Reply
  • Mike October 23, 2020, 1:27 pm

    I disagree that it is immoral to profit on rental housing. In fact, a reasonable expectation of profit is required to attract capital to any industry or venture that carries risk. There is a reason why the US (and most jurisdictions around the world) offer lucrative tax benefits to real estate investors: the government realizes that private investors provide a better housing experience than the government can, and they want to encourage this kind of investment. Both parties agree on this.

    Personally, my family of 4 finds house hacking to enhance our lifestyle and pursuit of freedom and happiness. The way we do it, we hack a triplex in Maine, renting two units full time and a 3rd unit in the winter, leaving it free to be our summer home. We hack a second house in Delaware, living in it during the winter and renting this beach home out in the summer. Both properties break even.

    Reply
  • NMW October 23, 2020, 1:48 pm

    This is HIGHLY variable by market…in my city it’s not making any sense.

    EXAMPLE: Salt Lake City
    MEDIAN HOUSE PRICE: $440k (typical of a 80 year old, 2 bd, crappy fixer upper)
    – Home Prices are skyrocketing here with the west coast exodus and tech jobs.
    – Houses being sold 15% over asking in 2 days, with very high downpayments and NO contingencies. The sellers have all the power, first time buyers don’t have a chance.

    I’m at $100k salary and still disgusted by the math and can’t convince myself buying makes any sense.

    OPTIONS:
    (1) Rent 1/2 a nice duplex for $1,200…split with my g/f…$600/mo cost

    (2) Buy house…$100k downpayment, opportunity cost of not investing it in stock…Lock into $2,200 mortgage liability. And then try to find a renter to sleep in my house for $1000/mo and ruin any sense of privacy?

    This is a no brainer for me right now. Happily renting cheap and invest $4k/ mo of my free cash flow in Index Funds.

    But…I’m very much of the “Millenial Revolution” mindset when it comes to housing being a borderline scam.

    Reply
  • Andrew October 23, 2020, 2:05 pm

    Man, I can’t bring myself to even take out a mortgage for my own private residence, let alone be a landlord via leverage. Most people save up that 20% and get a mortgage, but according to my math, there’s like a 20-year break-even on the costs to own a house that way, and putting less down is even worse because of PMI. Not only that, but assuming I get average returns from my investments over the course of those 20 years, I end up with more money in my pocket by renting until I can afford to buy the place in cash than if I had a mortgage. All that, plus I have a giant pile of money I can tap into in situations like today where I get laid off in the coronavirus economy, so I sleep like a baby while I’m looking for a new job instead of fearing foreclosure.

    Reply
    • Craig Curelop October 26, 2020, 7:21 pm

      Andrew,

      You can purchase a property like this for just 3% to 5% down. Payback period in terms of rent savings and cash flow tend to be just over one year. Returns are crazy!

      Reply
  • Eric Hughes October 23, 2020, 2:12 pm

    Enjoyed the article, Pete! I’ve never house hacked myself, but I have used out of state, cash-flowing rental properties (17 and counting) as the primary vehicle to retire early, which I did ~2 years ago. So of course I’m a total convert to the power of rental properties as an asset class, and as a means to achieve FI.

    A few things are unclear about Craig’s story that I’m curious about. First, I’m not sure how he is securing 95% financing on his properties. That LTV (loan-to-value) would not be available through conventional financing, which would require at least 20% down. (I personally put at least 25% down on all my loans, in order to get the best interest rate.) A lot of folks use an FHA loan (3.5% down) to house hack, but you can only have one at a time, and you’re required to live in the property. His ability to get this financing on multiple properties is clearly a key driver of his strategy, but I’m not clear how he’s able to do it. I’d love to understand this!

    Second, the rest of the expense structure on his deals isn’t totally clear. I think when we talk about a success story like this, it’s really important that the financials are totally transparent. For example, where are his property tax and insurance costs? What is he budgeting for maintenance & repairs? And for vacancy? I wonder if Craig would be willing to open the curtain more and provide those details? Without them, some of the numbers feel a bit squishy.

    Finally, a number of commenters were concerned about leverage in real estate. I am personally a huge fan of leverage — given how low interest rates are right now, it’s frankly too good a deal to pass up. But to mitigate the risks, I only use 30-year fixed loans, and always put at least 25% down. I would say that 95% LTV is extremely aggressive, and does create significantly more risk. All the stories of investors who have lost their shirts is because they leveraged up too aggressively; at 95% LTV, if prices fall even a little bit, it can potentially put you in a very dangerous spot. The good news is that Craig’s cash flow appears to be very strong, so as long as he can keep the properties occupied, he should be fine even if prices do drop.

    Thanks again for the article and profile!

    Reply
    • ben October 24, 2020, 2:39 am

      If fixed rates aren’t available in your markets, would you do it again with variable rates? Considering they can move 2-3% in a year?

      Reply
      • Eric Hughes October 24, 2020, 11:38 am

        No, too much risk for me. And fixed-rate loans are widely available.

        Reply
        • ben October 28, 2020, 1:02 pm

          Thanks for the response. I suspect the lack of fixed rates in my country is a huge deterent to investing in property. I remember in 1999 when our mortgage rates doubled from 12% to 24% overnight off the back of the Asian/Russian crisis. A lot of my parent’s friends lost their homes that time around.

          Reply
    • Spencer October 25, 2020, 10:04 pm

      Congrats on your portfolio!
      It sounds like he was able to buy at 5% down because he lived in the properties, and the banks treated them as a primary residence=superior interest rate and lower downpayment than is required for nonowner occupied investment properties which are typically 25% of purchase price like you stated. Banks like for you to live in such properties for 1 year after the purchase, but I’m not sure how they would know if the owner occupant were to move out early into another owner occupied home. Unless of course the same bank is used to finance both!

      Reply
  • Matt October 23, 2020, 2:14 pm

    Great post and great strategy. I have done a similar play except buying small, usually 1-2%, passive limited partner stakes in apartment complexes co-owned and operating by an experienced institutional asset manager. This allows me to be both hands off and diversified across multiple states and growing metro areas (I happen to be most concentrated in Denver). Executed correctly, the leverage is magic as described in the Bigger Pockets BRRRR strategy. Another magic piece of the equation is the depreciation and amortization write-offs. Collectively, I have yet to pay any income taxes on my rental income distributions. Actually, since 2011 I still have excess loss carry-forwards. I am a HUGE fan and have over 50% of my allocation in this strategy with an intention to continue to grow that percentage as I have liquidity and opportunity. On the opportunity front, I will say that good deals are very hard to come by. Everything seems very expensive.

    Reply
    • J October 23, 2020, 3:45 pm

      Matt, how have you been able to make those 1-2% stakes?

      Reply
    • Andrea Dixon October 24, 2020, 5:24 pm

      Matt,

      How does one get into doing that? I would be more comfortable with something like what you’re doing than being a direct landlord.

      Thanks,
      Andrea

      Reply
  • NMW October 23, 2020, 2:18 pm

    Bingo buddy! This is the real math. It’s so market dependent w/ Price to Rent ratios.

    Rent cheap, keep all expenses low… stash cash in Index Funds. Sleep happy and grow fat stache.

    Reply
  • Mark October 23, 2020, 2:20 pm

    I considered this strategy greatly, and put quite a lot of time in to researching. I have an extensive background in real estate – bought and sold many houses, and have done a lot of property management as well. My plan was to find larger houses that could be reconfigured by add new (even temporary) walls, rearranging the space, converting dining rooms and basements into bedrooms, etc, and renting it all room by room. The management of the room by room renting is more intensive. But even considering that, the numbers look awesome (on paper,) and there’s also all those cool tax benefits, amortization, etc from owning real estate.

    The BIG problem I kept finding is that in most localities there’s a very small number allowed of ‘unrelated’ people that can live in a house like that. A family of 6 can live in more or less any houses they want. But 6 unrelated people can’t. In many towns (like Boulder) I think the limit is 3 unrelated people in the house.

    I’d LOVE to believe this model is scalable, but that nasty little regulation, that’s similar in most localities around the country, killed the idea before I went anywhere with it.

    Anyone got a solution for this?
    Thank you all, and Pete, for all this awesomeness.

    Reply
    • Spencer October 25, 2020, 10:14 pm

      Occupancy laws are all over the map, it can be tricky in certain markets like boulder, 3/unit is very restrictive. You might try other markets that allow a higher occupancy (I have heard that Seattle allows 8 or maybe 10? per unit). Some markets allow for ADU’s (accessory dwelling units) that can make the numbers work. You might skirt the regulation by doing airbnb instead if it is allowed.

      Reply
  • SDW October 23, 2020, 2:32 pm

    Good for this guy and others who have “retired” with this method and other real estate ventures. I rented out a room in my place for several years and obviously benefited from it but it wasn’t without its hassles. Anytime you have to deal directly with humans, there are always time suck issues that pop up. I still much prefer the stock market as a means to retire. It’s just so hands off. Now that i’m financially independent via 100% stocks, my free time is completely my own, no rental house maintenance or tenant issues to deal with. Just full time biking, skiing , travelling, cooking etc for me. Can you really call yourself retired while you’re pumping out a flooded basement?

    Reply
    • Mr. Money Mustache October 23, 2020, 3:52 pm

      Yep, good point Mark! In theory, an empire as profitable as Craig’s could fund a part-time manager that would handle all of these things without his input, and still be more profitable than index fund ownership…

      … but you’ll notice that although I advocate for house hacking for people on the way to FI, I have zero rentals myself – only index funds. And my little HQ building/business, because that is pure fun and zero stress.

      For me, rental house ownership was easy, but still a bit of work that I was only willing to do in exchange for money. Now that I don’t need the extra money, I am not doing it :-)

      Reply
    • Spencer October 25, 2020, 10:45 pm

      SDW you are correct, a portfolio of self-managed rentals can easily turn into full time job. Congrats on your FI! There are ways to make RE investing more passive, such as hiring a property management company as MMM said. Many investors start small with a couple of self-managed rentals and then scale up to larger properties that are more amenable to outside management and much more passive. Our first property was a fourplex that we managed ourselves and still do. It takes so much more of our time than a much larger (34 unit) apartment complex that we purchased in 2018. The latter property is managed by a responsible company that takes care of everything, even the furnishing of some of the units and arranging payment for property taxes. We have visited it 3 times over the past two years just to check on it while passing through town. We get monthly and year-end statements and the manager emails me about once a quarter to get my input. We have found that it is easier to get quality property management for larger properties. It has been more challenging for the smaller ones, hence the self-managed fourplex. The cash on cash return on our rentals has roughly mirrored our vanguard mutual fund returns over the last 10 years, but it has far surpassed the index fund returns when appreciation and tax benefits are factored in.

      Reply
  • Marcia October 23, 2020, 2:34 pm

    We have never house hacked. We bought at a not-great time for the market (2004), and thus, bought basically the bottom of the market single family home. I considered it, but anything hack-able at the time we bought was out of our price range. (Think: duplexes, larger homes, homes with garages.)

    With changing laws in California (granny units) and a really tight rental market, it could be a good way to go, as long as you live in the unit. To be honest, we could probably rent our house for exactly the mortgage + prop tax by now, but that’s 16 years later. It’s the first time rents have reached that point. A new home buyer here would never be able to do that, even with hacking. However, hacking would bring down your total outlay each month.

    Many of our neighbors have granny units or have built them, including the next door neighbor (above their garage). Our house setup is not conducive for that (2BR, 1 BA, 1100sf with 4 people and a dog). No attic, no basement, no garage, and a split lot so our driveway goes to someone else’s house in the back. OTOH, by now we owe much less than we started with, the big kid is in HS so he’ll be gone before we know it. It was a perfect starter home and is a perfect retirement home, so we just decided to squeeze in the meantime.

    Although COVID has made it more difficult. The “perfect” house for when parents are working 40 hours a week and kids are in school 30 hours a week is a bit tight when you have 3 rooms and 4 people working/schooling at home. We are managing, even if I take some conference calls in the car.

    I almost bought a 1969 Scamp trailer for $4500 to park in the front yard as an office and “guest room”, but it sold too quickly and we have nothing to tow it with anyway…

    Reply
  • Teltic October 23, 2020, 2:44 pm

    I’ve read bigger pockets, and always wanted to buy a house using the 1% rule (monthly rent / purchase price = 1%). That will never happen in Salt Lake City, UT. I get .80% at best…

    I’m scared of a recession with housing… For some reason it’s easier for me to face punch myself and buy stocks at these prices. Houses? Shit.

    I have no more than 2 years left in the tank in my bull shit corporate finance career (that’s being generous). My salary won’t get me FI (80ish% lean FI; but I’d like some wiggle room… 1 more year syndrome).

    Do I just ball out and gobble up as many houses and house hack my way out? Would you do this?

    Reply
    • meatro October 24, 2020, 4:09 am

      Getting specific advice is probably best done in the forum,
      but a note from me if you are feeling crushed and are close:

      Do a calculation about how much you would need to make to cover your living expenses. As you’re here, it is probably near minimum wage. If you work somewhere else that covers the living expenses, your savings in the background are compounding and growing so that you will make FI at a later date. But in the meantime, you can take on a job that doesn’t make life miserable. If you are not that close or you have higher expenses, you can still do a career change if your expected ROI + your new-fun-job-earnings > living expenses. FIRE may take longer, but the fulfillment can start sooner. There is no reason to turbocharge your FI date if it comes the cost of day-to-day unhappiness, since FIRE itself is about leading a happy life.

      I think this “happy job” method is more reliable and fulfilling than trying to get to the magic number through an investment which I didn’t trust / didn’t work for my region / felt like trying to beat the market / etc.

      Good luck.

      Reply
  • VeganBetty October 23, 2020, 2:51 pm

    We didn’t know it at the time, but we lucked into a ‘house hacking’ situation. We bought our cute little LA bungalow and it had a detached room above the garage in 2004. That’s all it was, a room though with tall ceilings and windows all around in the hills of LA, stunning vistas. We renovated it and added a bathroom and kitchenette for the MIL. After she passed away, we Airbnb’d.

    At the end of 2019, we decided we wanted to move to Palm Springs, but prices were sky high and we would have had to sell our house to buy one so instead, we bought a mobile home in the cutest retro vintage PS park in the nicest part of the city. Where other houses are $800K for 1,000 sf, our MH was $140K, we paid cash, and has a great side yard, plus pool use, very comfy. We kept the LA house, rented out main house for $3500/month and since that’s right when the lockdown occurred, pivoted our renovated room above the garage from an Airbnb to full time rental for $2000/month. We clear abut $2500/month while it appreciates (has already doubled in value since 2004).

    A lot of people don’t consider trailers and manufactered homes, but they are an incredibly cheap alternative to stick built homes and essentially a greener alternative since they are built en masse. We renovated ours by replacing the floor and appliances and will upgrade the bathrooms one at a time. It’s been an incredibly savvy move, once you get over the stigma of having to say you live in a mobile home, ha. I’m still working on that!

    Reply
  • Paul October 23, 2020, 2:57 pm

    House hacking here in Norfolk VA. I’ve purchased a 5 bedroom home and I’m renting the rooms out to other roommates. It’s going extraordinarily well. Not only do the roommates cover my full mortgage, but the utilities too! Seriously a game-changer for me, it’s allowed me to purchase another duplex to rehab and rent as well!

    Thanks, Craig!

    Reply
  • Kiley Marvin October 23, 2020, 3:02 pm

    I LOVE that you did an article on this! I started learning about FIRE through this blog a little over a year ago and was very excited about index funds, 401Ks, trad IRAs and HSAs. I live very frugally (self converted van-life) so I was expecting to reach FI in 6 years with this method and the 4% rule. I was originally very excited about such a short working career but I kept thinking there must be a faster way. I eventually found House Hacking and purchased my first home a few months later! It has been an amazing experience and I highly recommend it to anyone wanting to fast track to retirement!

    Besides just the investment side of it, I have found it very fulfilling to create a supportive community with the renters in my house. When you bring high-quality like minded people together, it can be beneficial for everyone! I also like that with the rent by room method, you are helping to add more affordable housing options to a market that’s experiencing a severe inventory shortage (at least currently). As a minimalist van-lifer and mustachian, I’ve been saddened by the American trend towards higher consumption, larger houses, more expensive cars, etc. With rent by the room we can expose more people to cohousing and get people used to a low cost of living. It’s also more environmentally friendly to have more people living in one space because the more resources you share, the more you reduce a groups carbon footprint! For example, there is basically the same amount energy being used to cool or heat the house whether there’s 1 or 6 people living there!

    I could definitely go on about the benefits because I’m a true believer but I think the main advantage is that this is a great method to reach FI even sooner! My index fund FIRE date was 6 years but with House Hacking, my new FI date will be closer 2.5 years! Thanks again Craig and MMM for spreading the wisdom! You’re saving hundreds of people our most valuable resource – TIME.

    Reply
    • Kevin October 29, 2020, 1:59 pm

      I Think Kiley is right on. MMM’s objective as I understand it is not primarily about wealth generation (or wealth hoarding as some see it) but rather avenues for living harmoniously with our planet. And one method is to promote denser housing, with house hacking being one avenue for the USA’s ~80 million owner-occupied units to contribute toward a sustainability solution. Beyond environmental reasons, I wonder if rents would drop and benefit folks who don’t have access to wealth if, say 10 million of those owner-occupied units converted to house hacks in the next 12 months….

      Source: https://www.census.gov/housing/hvs/files/currenthvspress.pdf

      Reply
  • Jeff October 23, 2020, 3:14 pm

    Go Craig! Great article MMM, way to illustrate the power of house hacking for obtaining FI sooner! This is the exact strategy that I’m using to get me closer to FI here in Denver too, and it really is worth it if you are good with dealing with people.

    Properties are easy, but people are the difference between successful landlording and not. Especially now, the key is screening for the best tenants, and with Craig’s strategy of mixing tenant types with rent by the room, whole unit tenants, etc, that mitigates a lot of risk compared to renting the whole house out to one tenant only.

    As for my tenants, the pandemic has definitely affected some of my tenants, but since I also combine a lot of these strategies of renting by the room, renting out a basement, etc, I’m not reliant on one tenant to cover the whole mortgage.

    Thus, I was able to give breaks to my tenants that lost their jobs and struggled for a few months till things opened back up. They were very appreciative that I worked with them.

    Is it more work than index funds? Absolutely! The real numbers is how much time do you spend on each property. Since I’m not the most handy person, I have someone that can fix doors, appliances, electrical problems, leaks, etc. In my four years of doing house hacking, I’ve only had one true emergency, a furnace going out on Christmas Eve!
    Besides that, it is pretty automatic, but the main difference is finding good tenants that will treat your property with respect.

    The most amount of time is filling vacancies, but that isn’t that hard if you screen well and now, you can do virtual showings to save even more time. To quantify how much I spend on each of my four house hacks, it is probably between 5-10 hours per month on average, which is worth it to me at this point in my life.

    I recommend house hacking to everyone since housing is usually your biggest expense, and this is one strategy that help minimize the cost to live and sometimes even profit if you are flexible.

    Reply
  • Kevin October 23, 2020, 3:20 pm

    I bought a fixer upper in Alaska in an area where hotels are expensive and in high demand during certain times if the year. The first thing I did was turn the bonus room with a deck and outside access into an efficiency apartment that I now rent out on Airbnb. $4000 investment into the conversion where I did all the work myself pays an average of $10-12K a year. A lot of it was timing and location, but this has been by far my best investment. I can only imagine the resale value to an income stream that comes with the property. Good article.

    Reply
  • Elena de Pablo Leonardo October 23, 2020, 3:42 pm

    In our case my husband and I rent there flats in our small town on the North of Spain, keep on working and use the benefits of the rentals to pay for the university studies of 14 girls from Wukro, Ethiopia. We may not be financially independent but our lives gain true meaning.

    Reply
    • Debbi October 24, 2020, 6:35 am

      That is a wonderful story. Hearing it made my day so much better. Thank you.

      Reply
      • Elena de Pablo Leonardo October 27, 2020, 5:46 am

        We call it Mustachianism 2.0. You become FI but continue working for those who cannot.
        And, by the way, we decided to do it after reading ‘The life you can save’ recommended by MMM in this blog

        Reply
  • Dharma Bum October 23, 2020, 3:46 pm

    Ahhhhhhhh….the old “Be an Amateur Landlord Game”…2nd time I fell for it this month.
    Income Property. The subject if many a late night infomercial, countless real estate charlatans, and a virtually INFINITE number of books.
    Here’s the issue: it can ACTUALLY work!
    Now look here, I’m basically a moron, but I still managed to retire at 58 ( not exact FIRE, but better than the 67 year old dopes that are still slogging it out).
    Income properties were a significant part of that strategy.
    2 duplexes, 1 single family home, 8 tenants, and ten years later, ayyyyyy – badda boom, badda bing, I cash out and throw it into index funds. The rest is history.
    What’s the catch? TIMING.
    Trust me – I didn’t know what the fuck I was doing.
    I just decided one day that “ everybody makes money in real estate”, so I bought 3 properties in a month.
    Mortgage rates were around 5% variable rate, 5 year renewal, 30 year amortization (Canadian rules – I live in Toronto).
    Anyway – I fix the joints up, get some tenants, collect rent, deal with the utilities, blah blah blah.
    Here’s the deal: tenants are a fucking nightmare. Maintenance, if you’re not so inclined, is difficult and/or expensive if you gotta hire plumbers, electricians, appliance repair, and other service people. It costs a lot when your coin laundry machine gets robbed AND you have to fix it.
    BUT, if you’re timing is right, this type of leverage can catapult your next worth exponentially.
    With my dumb luck, I experienced the highest acceleration of residential real estate prices in history PLUS the lowest mortgage rates in history. The value of these dumps skyrocketed between 2007 and 2017. Look it up. Toronto has one if the highest housing prices in the world (who knew?).
    That, coupled with the free fall drop in mortgage rates to below 2% (after the 2008 debacle), enabled me to refinance at less than half the cost while getting reappraised at values close to 30% higher within 2 years of the initial deals. Win – Win.
    Pure timing LUCK.
    Depending on the specific market locale you’re in will affect your success.
    Toronto is now a total nightmare. Average price across the board is over a million. For single family homes, $1.5 million will get you a dump is a crap area. You want a basic, nice, middle class neighbourhood in a decent area of the city? Prepare to cough up a couple mil.
    Yes, real estate is a good income producer, if you buy right, at the right time, interest rates are cheap, the market is appreciating, you are handy, you have the temperament to deal with difficult tenants (assholes and deadbeats), and the rent actually gets paid.
    Otherwise, it can be like holding down 3 jobs where you lose money.
    Also, find a good paralegal. In most jurisdictions, the eviction process and rent recovery process is time consuming and onerous.
    Worked for me though.
    Phew!

    Dharma Bum

    Reply
  • Ilana October 23, 2020, 3:58 pm

    I’m a renter and tenants rights advocate in Toronto. Trust me, it’s a “nightmare” here more for tenants than for any landlord with a sob story. I’ll get out my tiny violin for the landlords out there as soon as we get rid of this crap premier and regain rent control.

    Reply
    • Renee Lehnen October 23, 2020, 6:34 pm

      You have rent control, Ilana. Landlords will not be permitted to raise rents in 2021 in Ontario.

      Reply
  • Becky Roberts October 23, 2020, 4:17 pm

    I just started reading the first comments about renters damaging property. As I live and rent out in a desirable single family neighborhood in Arvada, a Denver suburb, the market supports me having the renters take out a rental insurance policy and adding my name to it. Renter’s insurance is relatively cheap for them and that way, I don’t have to go to my insurance first if major damage happens. By the way, I purchased a 4homes in the past 10 years in the same Arvada neighborhood, and two were through HUD. gov, where I only had to pay $100 down and then live in them for two years. only kept two because I abhor even good debt, but the two are paid for. Hud is probably not possible now, but could be a down market again in few years.

    Reply
  • Liberty October 23, 2020, 4:21 pm

    My husband and I and our four young children have lived the house hacking lifestyle for 5 years now in Colorado.

    We lived for free for a year housesitting while building a tiny house. Then we lived for free for the next three years in the tiny house while doing farm chores where we were parked.

    A year ago we bought our first house for $445k and rent out the basement to traveling professionals for $1350-$1500/month, taking care of 60% of our $2317 mortgage.

    This coming Spring, we look forward to renting out the tiny house for $800-$1000/month, which will bring our mortgage to effectively $0.

    It has been an amazing, challenging five years filled with blood, sweat, and tears, but I know of no better way to claw oneself out of the financial destitution we faced than this…truly freeing!

    Reply
  • Shak October 23, 2020, 4:26 pm

    Long time reader and first time commenter, just to add my voice to the minority who believe the combination of high density accomodation and landlordism to be an indictment on society.

    Reply
  • CapitalistRoader October 23, 2020, 5:42 pm

    “500 sf finished basement which includes bedroom, bathroom, and small kitchen/living area”

    I’d Airbnb that. No long-term leases with crazy tenants to worry about.

    Reply
  • Sarah October 23, 2020, 7:07 pm

    I’m doing almost the exact same thing, we live in LA, rent three bedrooms which covers our sizable mortgage and are currently building another 3 bedroom house in our backyard to rent next (Taking advantage of newer lax ADU laws). Could be retired in about a year or so. Been a faithful reader of MMM for 6 years now! Dreams becoming reality!

    Reply
  • Ben October 23, 2020, 7:40 pm

    Hi Pete,

    I’ve loved the blog for ages, and I’m always happy to see a new post, but I’m afraid you’re slipping to the dark side here. You posted a wonderful article called “What if Everyone Became Frugal?” where you addressed what would happen if everyone followed your examples/ideals, and it was a very compelling case that the FIRE ideas you promote are scalable and good for the world, promoting healthier lifestyles and better environmental outcomes.

    That is not the case here. What Craig and all for-profit landlords do is exploit their tenants. They use their existing financial advantages (good credit, lots of money for down payments, etc.) to grab properties and then make them more expensive. This is literally creating income inequality and making housing, a basic human need, more expensive. Then Craig multiplies that effect with property after property. The profit he makes is his tenants paying more than he did for the same thing, and paying again and again and again. There is a strict upper limit of course to the amount of parasites tenants can support, so for-profit landlording is obviously not an option for more than a small minority of the population. The more people try to do this, the worse the world gets.

    You raise some good points about how we can encourage the construction of quality, high-density housing in urban areas and combat sprawl and pollution, but I notice that you’ve kept your hands (mostly) clean of parasitical landowning. I would hope your blog would not promote it.

    Reply
    • Mr. Money Mustache October 24, 2020, 10:16 am

      Nope, I have been a landlord many times over and I think it is an incredibly useful service, not parasitical by nature. At all. I’ve already covered this in other comments if you care to scroll through.

      As with any business, you can be generous and useful to your customers, or you can be an asshole. Some services, like payday lending, are almost impossible to do ethically, because the solution to paycheck-to-paycheck living is NOT borrowing more money. But the solution to needing a place to live IS renting or buying one.

      And OF COURSE there should be a “profit” in being a property developer and owner – without that there would be no incentive for anybody to build anything!

      Reply
      • CJ October 27, 2020, 12:07 am

        Hi MMM

        I generally agree with Ben. Long time follower, but I think this post is at best a bit tone-deaf, especially in 2020. As Chris Rock recently said in the NYTimes, ““No one has less compassion for humans than a landlord””. On the spectrum of Mother Teresa to Payday Lending, being a landlord is generally closer to the latter, although of course you can move the needle a bit away from there.

        Your last paragraph also contains a big value statement that may not hold for all. Like, for instance, habitat for humanity. One can be incentivised to help those in need for reasons that are not profit driven. And, to the extent that they are profit driven, then there’s a question of, are you actually helping them or profiteering off them? It just happens that our system is currently structured in such a manner to put a huge emphasis on using profit to incentivize people. But that’s a choice we make in structuring our society, not something that is unchangeable or somehow out of our control or fundamentally morally right.

        It reminds me of the opening to David Graeber’s book on Debt, where someone is flabbergasted that poor countries would not repay their debt. A fundamental assumption of most that just happens to benefit rich people (countries).

        Reply
      • Ishmael October 27, 2020, 2:57 pm

        The problem comes out of the basic math of it, a renters rent will always cover the mortgage of the place they are renting, it has to, if it didn’t you would be losing money on the deal.

        That means that their labor is really paying for the place, and then some on the top for the landlords “services” (paying someone else with the tenants rent to fix things)

        The big difference between you and most renters is they can’t get the 20k or whatever together for the down payment, if they could most would because it’s almost always cheaper.

        That’s why people say landlording is parasitic, because the renter is paying for the property, you are just a middle man.

        Reply
        • Paul in Newport October 28, 2020, 10:56 am

          But is property any different than any other good or service, despite it is a necessity? Should the government or Walmart or your local water company be forced to provide you goods/services at breakeven pricing, also necessities? Would there ever be innovation? Would the quality be stable? A farmer should grow a crop to feed his own family in addition to the world. And despite that we all need to eat, I don’t feel the least bit guilty forking over money at the grocery in order to sustain myself to do some labor to earn some money to by the groceries next week. The key is to ensure adequate competition to keep the prices at the point that trading your money for the service actually gives you a net benefit and this is where the regulations can make or break things. At the grocery, if there is only one vegetable, then I guess the price can be quite high. If I can choose for tomatoes or carrots or lettuce, then they each are incentivized to win my purchase decision and this ensures none are ever uncompetitively expensive. For in this case Craig is meeting a market need for smaller spaces at less cash outlay which the government often prevents in new construction due to artificial regulations like car park spaces per be or minimum square footages. It are those regulations which actually make things expensive.

          Reply
          • Ishmael November 9, 2020, 1:15 pm

            You make good points and i don’t think i have all the answers but to me it’s this simple.

            If you put something up for sale that means your implicitly ok with someone not getting that thing.
            so if you put food up for sale if means your ok with people not getting food, or housing, or whatever else, even if they desperately need it to live.
            and I consider that to be immoral. There are different ways of solving that problem but that’s the problem.

            There are some things we have decided to not put on markets, like organs, and in some parts of the world healthcare, because it’s not acceptable for people to go without because of money.

            Reply
  • Willard October 23, 2020, 9:20 pm

    Upstate NY house hacking since 2010 at 24 years old. Started in a duplex, moved to a single family in 2012 (had our 2 kids living there), moved to another duplex in 2016. It isn’t for everybody, but we have a nice place and are happy, 5 mile one way from work before we went remote in March

    The #s, just considering the various units while they were in service as rentals 2011-2019:

    $97,476 in profit (gross rent minus interest, taxes, insurance, repair expenses but not subtracting depreciation)

    $35,913 in paid off, amoritized principal, ignoring any appreciation

    $61,563 in cash flow 2011-2019

    Didn’t pay tax on tax on $59,892 of the profit due to depreciation, which is thousands in taxes saved

    Plus your remaining, actual housing expense is incredibly low – I bought a 210k place, but half is a rental, so my “personal payment” is on 110k and a proportionate amount of the taxes, etc.

    Having each place as a primary first locks you into a nice rate – I remember in 2010 being told my 4.5% fha rate was unbeatable, yet every subsequent purchase resulted in an even lower rate. Currently a 3.375% refinance right before covid for a 10 year variable

    A nice wind to have at my back. Now I’m starting to get into the all my houses are below 80% ltv, HELOC phase of things

    FHA into a duplex with 3.5% down to start can be a great way to get the ball rolling.

    We also had a very favorable and unusual circumstance for the single family (got a 20% “gift of equity” from a family estate, so basically nothing down out of pocket, just a paper down payment). Then 15% down on the new duplex. It does get more difficult to qualify with a bank as you add properties, as you need reserves, steeper down payments, etc. But in my market – I was talking 115k-215k priced houses, so peanuts compared to most of you. And money in a retirement account will generally count as the reserves

    Strong w2 income also helps

    Having some trusted repair people can massively help alleviate the stress, if self managing.

    Reply

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Take a look around. If you think you are hardcore enough to handle Maximum Mustache, feel free to start at the first article and read your way up to the present using the links at the bottom of each article.

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Love, Mr. Money Mustache

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