House Hacks for Homeowners

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Housing Hacks for Homeowners

[00:00:00] Hey, real estate fans. Welcome back to the podcast, Alice Lema, here, broker John L. Scott in beautiful Southern Oregon. And today we're gonna talk about house hacking for first time home buyers. But it's not just for first time home buyers. You could do this yourself if you already own real estate. But I particularly wanna address the first time home buyers because it is such a struggle right now. It really is. So take these ideas into consideration.

First of all, let's talk about what house hacking is, cuz not everybody knows that term. It's a kind of a pop culture term, and it means monetizing, getting passive income, making money out of your real estate assets in some creative ways. More creative than, than others. So first of all home ownership in general is kind of a long-term wealth building, but lately, like, I mean lately, like in the last 10 to 15 years, we've had appreciation almost every single year. [00:01:00] And that is somewhat normal in the lower percentage points, but some of our appreciations have been double digits in the last few years.

So that's not normal or sustainable. But in general, home ownership is considered a long term. Investment long-term wealth building. House hacking brings real-time monetization into your life immediately. And one of the ways you can do that are by is by renting out your rooms. Now, this is not for everybody and not all floor plans are conducive to this, but if you have people you already know and trust, it's sure a lot easier. And in some areas, people are getting as much as 500 to $800 a month for rent out a room, depending on how many people they have to share bathrooms with and parking and all that, and amenities. And then in, in other areas, they're getting a thousand dollars a month for ensuite, main rooms, what we used to call master. We're not supposed to use the word master anymore, but en suite main bedrooms in [00:02:00] some cases, at least in our area, can get a thousand dollars a month, again, depending on amenities and access and parking and all that. So that is one idea is just renting out the rooms.

And we will do deep dive podcasts into each one of these. But I just wanna give you the list because if you're thinking about buying a house or you're trying to buy a house sometimes having these ideas in the back of your mind helps you make a better purchase. It also helps you maybe make a purchase of a property you normally wouldn't buy, but it's a better investment. That's also valuable too. But moving on. So renting out rooms is one, just buying a duplex, a triplex, or a fourplex, builds in income right there. Now, why am I limiting to just two, three, and four units? Because all the mortgage people will give you a residential kind of loan on a duplex, triplex, or fourplex.

And that means you do have to live in it, but you get the owner-occupied interest [00:03:00] rate, your down payment can be lower. There's a lot of benefits but you do have to live in it. And the units that are five and over require a completely different kind of loan. You're vetted much more harshly by the lender.

And, and again, we'll, we'll talk about that another time, but especially for first time people, one of the things not everybody knows is that the lender will take 75% of the rents of the other unit and consider that income on your pre-approval. So here's an example. You could be pre-approved to buy a regular house by itself for $150,000, but a duplex, you might be approved to buy $235,000.

And those are just general ratios. But you can see all of a sudden your pre-approval level goes way up and it's because there's already rental income or the units are are already on the property, even if they're not rented. The lender will kind of scoot some of that income over to [00:04:00] your side. Now that's, that's just to get the loan closed, but additionally, you've got that income coming in and in some cases, at least in our area right now, people are either living for free or they're $2,600 a month mortgage gets paid by the renters except for maybe $500. And I know those sound like extreme ratios, but literally we have people living for free or just paying 500 to $800 of their own $2000 plus dollars a month mortgage. It's. It's really fun.

You need to check the state laws where you are, because being a landlord, you have to follow rules. You wanna be in integrity anyway, not only with the people that are living on your property, but business-wise. And we can talk more about that later, but yeah, duplex, triplex, fourplex, one of my favorite, favorite ideas, especially for first time home buyers.

One of the other possibilities. Is that you can create a [00:05:00] legal dwelling out of your garage or an outbuilding. So if you already own a property or if you're looking at a property that you qualify for, and it has a two car garage, or even if it has a one car garage or some kind of a outbuilding, you can legally create an apartment out of that. You just have to follow your municipality, county state rules, and I keep saying legal because you don't want to, you don't wanna shortcut on this. It's dangerous. There's health and safety issues. It's also not an integrity. And it lowers the value of your property because adding the extra money for the permits and creating that space legally and safely, adds a ton of value to your property.

But let's talk about the garage conversion or outbuilding conversion. For rent, you're gonna put in a bathroom of some kind. You're gonna put in some kind of a kitchen. It's gonna have its own Electrical [00:06:00] meter and it's gonna have its own address. You're gonna want firewalls if it's attached. And again, this all has to do with the county zoning city zoning, state rules, you know, all that.

But some of those spaces can rent fairly quickly because they're small and if there is a downturn in the rental market, so it becomes more tenant heavy, I'm sorry, more tenant oriented than landlord. So the market conditions are more on the tenant side. There's more rental choices, for example. Then you still can usually rent those smaller spaces.

It's the bigger ones that go out of favor when the rental market changes, it's the bigger properties or the less comfortable, physically comfortable properties that go out of favor and people start downsizing. Renters downsize too in hard economic times. Or if there just becomes more properties available, then these garage conversions or [00:07:00] these outbuilding conversions are one of my favorites because they seem to withstand the changing of market conditions over time. And again, they're taking a chunk out of your mortgage every month and who doesn't enjoy that? So that's legally creating dwellings in garages or outbuildings.

Lastly, I just wanna mention adding units. Now, if you're buying a house, For the first time, and it only has one property, one house on the property, that's fine. But maybe in the back of your mind, you're picking something with a bigger yard and you're gonna check with the zoning and the building department before you buy. So you know what the rules are about adding units.

And this can mean you add a garage first and then convert the garage later, or you create an actual apartment, slash additional dwelling unit ADU in the front, in the back. If you're gonna look for properties like that, try to get something with alley access or a big [00:08:00] side kind of driveway or side area where somebody could drive into the back.

You could also create the dwelling in the back for yourself and have your renters be in the front. This is, these are all lifestyle questions, but if you're gonna be out shopping whether it's your first property or you're getting more properties, keep that in mind because the kind of orientation that these lots have to, not only the main street, but perhaps alley access will make a difference.

And it's not usually any more money. To get something with alley access. In fact, a lot of the properties in our area that have alley access are in more affordable communities. So super exciting. Those are just some general tips about house hacking. If you want to talk more or run your scenario by me just gimme a call.

Gimme a text, 541-301-7980, and if you [00:09:00] are a first time home buyer and you're struggling, also gimme a call. I've got lots of great ideas and definitely a big fan of home ownership, especially for young people. Okay, have a beautiful weekend. Hug those you love. We'll see you next time. Bye folks.