The House Hack that Allows us to Live for Free

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Housing is by and large the most expensive expenditure in the typical American budget. The average person spends 30% of their income on housing alone (which is one of the criteria I have for screening tenants, the rent must be 30% or less of their income to qualify). I genuinely find this to be a baffling number. 30% of every dollar that comes into the average person’s account is earmarked for housing.
Lets go through some numbers: If your family is making the average household income of $59k a year, and you’re spending the average of 30% of your income on housing, you’re blowing through $17,700 a year. Or, $1,475 a month just on where you rest your head. If you retire at the average retirement age of 62, this means you’ve worked 20 years of your life solely for that strategically assembled building material over your head. Not to mention that the average house size is growing every year.
The average house size is now 1800 sq ft. and that’s factoring in all the old houses still around. New houses are averaging 2400 sq feet, but houses built in the 70’s were under 1500 sq ft. Couple this with the fact that it takes the average person 26 minutes to commute to work. Everything about the average person’s housing choice is wrong. Its too big, it costs too much, and it’s too far away, which in turn is costing you even more.
But, what if there was another path. What if average isn’t good enough for you. What if you are wanting to cut that retiring age in half or more. If so, you’re going to have to make some ‘drastic’ changes compared to the way the average person spends their money. Enter “house hacking”.
Chad Carson, one of my favorite real estate experts, explains house hacking as:

A house hack basically means that you buy a small multi-unit real estate property, live in one unit, and rent out the others. The income from the rental units can pay for some or all of expenses while you live there. Then once you move out, the property could also become a great long-term rental investment.

A number of properties could work for this housing format: a duplex, a triplex, a quadplex, buying a house and renting the spare rooms to roommates, or the one that we’ve chosen, buying a house with a detached apartment. And, we’ve even flipped this option on its head. Most people that would even consider buying a house with a detached apartment would move into the house, and rent out the apartment to offset some of their mortgage, or other living expenses. We are living in the apartment and renting out the house to cover all of our living expenses.
I’ll give you a rundown of the property. 3 bedrooms 1 bathroom with a large yard and a 1 bed 1 bath detached apartment in a pretty central location, but still in a quiet neighborhood. Square footage for the house: 1065, or only 60% of the average house size of 1800 sq ft. Square footage of the apartment: 450, or around 25% of the size of a typical house. Purchase price? $86,500.
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Both places were in very good condition, new roof, new a/c, new windows, etc. Except for the fact that the owners of the house were avid smokers. So avid that I’ve considered the possibility that they might’ve been sponsored by Marlboro. But, it wasn’t anything that a good carpet cleaning, a week of the windows being open, and a 2 inch layer of paint on all the walls and ceilings wouldn’t take care of. So Mrs. RRR and I got to work, with the occasional help from my mother, painting, cleaning, and a touch of plumbing to get the place rent ready. After some phenomenal pictures, taken by my wonderful sister-in-law, she was ready to list for rent.
We had a lot of interest, and a few showings within the first few days. Ultimately, an older couple jumped at the opportunity for our place. They were moving from out of state to be closer to family, had plenty of confirmed income, passed their background and credit checks with flying colors, and he electronically sent me their security deposit before he even finished the showing. I even got to pocket the non-refundable $250 pet fee for their chihuahua and cat, who are both really chill animals, unlike our own resident hellion, Cookie. They have been the perfect neighbors and tenants.
They are paying $870 a month for rent, which the real estate aficionados will notice that it’s literally a single hair over the 1% rule (the rule of thumb is that for a property to cash flow, the monthly rent should be 1% of the purchase price. There are many more factors, but this is an easy back of the envelope calculation to evaluate or eliminate properties) But, since we are in a mother-in-law suite and technically not a multifamily property, there is only one water and one electric meter, so we are covering all the utilities. With that being said, this past month, in the dead of summer and 100º heat, the combined utilities was a whopping $200.
This is how the math breaks down:
Expenses: $581 mortgage (principal, interest, taxes, & insurance) + $200 utility bill (for both ourselves and the tenants) + $87 for maintenance (rule of thumb is save 10% of rent for maintenance issues) = $868 total.
$868 – $870 = $2 net.
I have to remind myself that we are on the path to financial independence and have to show unparalleled restraint to not blow that 2 bucks a month in one place. If we save it up for the year, we can splurge for 3 months of basic Netflix.
But, in all seriousness, by being flexible and being willing to live in a smaller place, we’ve taken a huge liability of -$1,475 a month, and turned it into a gain of $2. On those savings alone, we can almost max out the yearly 401k limit of $19,000. Let’s just say that we wanted to do this for 5 years and invest the amount we save. With a 7% interest rate, we would have just shy of $109k.
And it’s important to note that the $2 net is with us living in the apartment. When we find another property that we’d like to househack, we can always rinse and repeat our process. We are flexible and open to move and rent out the apartment and add another $400-450 in income.
Now, I’m obviously not delusional enough to think that everyone is going to go out and buy a house with an accessory dwelling unit, or a duplex. All I’m saying is to take a serious look at your current housing situation. Is there a way for you to game the system?
Is where you are living now worth 20 years of your life working the same bullshit job? Is it worth years of your freedom? I have only lived in 5 places at this point in my life, but I’m confident in saying that I will never feel that way about a place that I sleep. A house, that I ultimately choose, does not have that type of control over my life. How do you feel about it?