A YOUNG couple has managed to bypass their mortgage payments, living rent free in their own home thanks to their house hacking trick.
For the past decade, they have not only paid 0% in housing costs, but also turned a profit from their home using the smart strategy.
A young couple used a strategy called house hacking to completely eliminate their housing expenses[/caption]
House hacking allowed the couple to live rent free in their own home and even make a profit[/caption]
Rent or mortgage payments are the biggest expense for most Americans, comprising nearly 33% of household budgets in 2023, per a release from the Bureau of Labor Statistics.
Todd and Angela Baldwin, however, have paid 0% for housing over the past 10 years thanks to “house hacking,” a trick that has provided them with enough financial freedom to construct their dream home on a 2.5-acre plot of land.
In December 2015, the couple purchased their first home – a 6-bed, 4-bath property outside of Seattle.
The Baldwins moved into the master bedroom, used the smallest room as an office, and rented out the other four bedrooms.
They capitalized on the strategy called “house hacking,” which involves renting extra rooms or units to help offset or eliminate your mortgage payment.
“We’ve actually never owned a property where we have a mortgage that isn’t paid for by our tenants,” Todd told Business Insider.
MAKE IT RAIN
The couple managed to not only completely axe their housing costs, but also turn a profit from their home.
“Our house pays us $5,000 a month, so $60,000 a year,” Todd explained, noting that he and his wife have since sold their first house and purchased a duplex to fit their growing family.
The couple currently lives in their own unit with their two children and rent the other half of their duplex on Airbnb rather than sharing a kitchen and common space.
The Baldwins also turned their garage into a studio apartment, which they listed as a short-term rental.
“With depreciation, that’s all tax-free,” said Todd, referring to the rental property depreciation deduction.
He views the $60,000 in annual rental income as roughly what he would take home if he had a $100,000 salary,
“So if we look at the net income we make from living in our house, it’s like our house is a $100,000 salary. But it’s more than that because, also, our mortgage is free,” he explained.
The couple pulls in approximately $9,000 each month from their two Airbnb listings, said Baldwin.
Pros and cons of house hacking
What are the benefits?
- Minimized Housing Costs: The main benefit of house hacking is the potential to lower or even eliminate your monthly mortgage payments through rental income.
- Build Equity Faster: With tenants helping to pay down your mortgage, you can build ownership in your property quicker.
- Opportunity for Real Estate Investing: House hacking is an accessible entry point into the world of real estate, offering hands-on property management experience with potentially less risk than buying a separate rental property.
- Financial Freedom: The extra cash made from house hacking can go towards your savings accounts, home upgrades, or paying off other debts, helping increase your financial independence.
- Tax Advantages: You may be eligible to deduct a portion of your housing expenses, such as mortgage interest, property taxes, and depreciation.
What are the challenges?
- Privacy and Shared Spaces: Renting out rooms or living in a multi-unit property means you may have to share common areas.
- Landlord Responsibilities: Being a landlord comes with a number of responsibilities, including tenant management, maintenance requests, and resolving any issues that may arise.
- Investment Risk: Americans who take on the home hacking strategy could face higher-than-expected costs if they struggle to find tenants or if the rental income does not cover all their expenses.
“Some months it might be like $8,900, some months it might be like $9,400.”
He attributed the lucrative nature of their properties to having short-term rentals, saying that were their units rented to long-term tenants, the couple would only make about half of what they did.
“I would love to have my ego stroked and say we’re awesome hosts, but I think we just lucked out with this building,” said Todd, praising the home’s location.
“It’s 10 minutes from the Seattle-Tacoma airport, but it’s not directly in the flight path,” he said. “We have a lot of people coming to stay because it’s so close to the airport, but then you can take an Uber and get downtown in 20 minutes.”
HACK YOUR HOME
House hacking is a real estate strategy that involves leveraging your property to offset or eliminate your housing expenses.
Homeowners can either rent their extra rooms if they live in a single-family home or rent their units if they’re in a multi-family home.
By turning their primary residence into an income-producing asset, the Baldwins were able to take a step back from work and even build their dream home.
The couple plans to construct the home with an infinity pool waterslide, barn with a bowling lane, movie theater, and a cottage near the main house for Todd’s mom.
Todd, now able to pause his full-time work as a real estate wholesaler, plans on building their dream home by himself rather than hiring a general contractor.
Once the house is completed in the next few years and the family can move in, Todd plans to keep the duplex and list the unit they are currently living in on Airbnb.
The Baldwins purchased the 2.5-acre property overlooking the Puget Sound for $735,000 in cash.
Todd admitted that while his work income helped with the purchase, there was no way the couple would have been able to pay in cash “had we not lived for free for so long and been really smart with our investing strategy.”
He encouraged others to consider house hacking, praising the opportunities for financial freedom.
“I think everybody should live for free,” he said.
“I think of it this way: You need some place to live. You’re either going to pay off someone else’s mortgage – that’s called renting – you’re going to pay off your own mortgage, which is living in your house but not monetizing it, or other people are going to pay off your mortgage.”
It is a great financial strategy for those who are okay with sharing space with roommates, he said.
“If you don’t mind Airbnb and having a stranger in the unit below you or across the hall from you, then financially speaking, it’s a no-brainer,” said Todd.
“Having other people pay off your mortgage seems like this crazy loophole, and it honestly surprises me that more people don’t do it.”
Read about the woman who purchased her first home at 26 on a $45,000 salary – see how she did it with no savings or help from her mom and dad.
Plus, check out the new way that homebuyers were given to pay for a house following a game-changing policy switch – and it’s not with cash.
