So you want to be a millionaire? Most of us will never accomplish this status, not because it is difficult to achieve, but because we don’t want to sacrifice. Yes, most self-made millionaires had to sacrifice something to achieve wealth.
Many wealth generators can make us millionaires. I use the military as my wealth generator, but we also have a business, the stock market, and cryptocurrencies. However, real estate is the best wealth generator because it is accessible to everyone.
First and foremost, real estate is a mindset (beginner, intermediate, and advanced). If you can master the mindset, you can make tons of money. The first thing to understand about real estate is that you will be dealing with people. Please read the above series for more on building the mindset for real estate.
Financial Independence through Real Estate
Now, money is the second thing that prevents people from getting involved in real estate. Buying your first primary residence gives you the maximum amount of leverage (part 2), often with little money down.
The best part of real estate is house hacking. House hacking can make you extremely rich; however, most people feel it’s beneath them. And that is truly sad. Let me go on a quick rant.
When in America did we start to believe that we deserve to live alone? Yes, we all want to move out of our parent’s house, but housing prices are too high to go at it solo. We should be paying no more than 20% in total housing costs; that includes mortgage (or rent), utilities, and maintenance.
I don’t even believe in paying that much. I say you should aim for mortgage zero or even mortgage positive. Yes, you sacrifice a little legroom but gain much more (financial) freedom. It’s disappointing to see so many people with large homes who do not share.
Rant over. House hacking is the art of using your primary residence to collect rental income. You can also house hack by buying a fix-and-flip and living in it while you complete the renovation.
How to Determine the Best Time to Buy a House
Although the military is my wealth generator, the income from house hacking has set my wife and me financially free. Let’s explore the magic of an infinite return before I continue.
An infinite return is when you make an investment, receive all your money back and keep the asset. The asset then continues to produce cash for you every month.
First, let’s look at the stock market. If we receive a 5% return on our dividend-paying blue-chip stock, using the rule of 72, it will take us 14.4 years to get our money back. Once we have our initial money back, our stocks would be in an infinite return.
Starting a business will probably be at least a couple of years before you are profitable and debt-free. Your business then would be in an infinite return.
If we buy an investment property with a 20% down payment and a cash-on-cash return of 10%, it will take 7.2 years to recoup our cash and start our infinite return.
6 Types of Income Streams
Now, let’s look at renting rooms. In this scenario, we start the process in January. We choose to rent our master suite to a tenant. We move all of our things out, perform a professional cleaning, buy a new bed and mattress, tv, lamps, nightstands, and refrigerator.
We also order Hulu, HBO Max, and Netflix so that the tenant has everything they need. In total, we spend $800 (on the high side) on all of our improvements. We take good pictures with our phone (free) and list the room on Craigslist (free).
The value of a master suite should be the same as a one-bedroom apartment. The tenant gives up privacy versus an apartment, but in return, they get free utilities, less stress, no stairs, a washer/dryer, and a closer parking spot. A home offers a lot of things people don’t consider or may take for granted.
In this example, it takes us a week to get a fresh room on the market. Within one week, it will rent for $900/month if you take it seriously. Wham, we rented it in February, and we are already in an infinite return. In one week! It is magical.
Run a Passive Airbnb Business
Receiving $900/month may not sound like a lot, but boy, in reality, it is HUGE. First, that money can go directly to paying down bills. If you use house hacking in conjunction with lowering expenses, you will see the effects immediately.
My wife and I started renting rooms in January of 2019 with -$77,000 in debt and about $3,000 in savings (not investments). Today, September 2021, we have ZERO debt and +$195,000 in investments and savings. Wow, less than three years.
House hacking works best with the 4 Steps to Become Rich: 1) destroy debt 2) reduce expenses 3) increase income 4) obtain assets. Read the article “4 Steps to Become Rich (book)” to gain further insight.
My wife and I worked these steps a little out of order, but they worked fast. We paid off cars and loans, cut things like Netflix and cable, and consolidated credit cards. When we completed a loan or car note, that money went straight into investments. We became rich, very quickly, because of renting rooms and the magic of an infinite return.
The Magic of Rents
But, sometimes, showing the magic is better than just bragging. Here is my Wells Fargo account from June 19, 2020. Next, here it is, September 23, 2021.
Now, imagine these numbers across 8-10 accounts between my wife and me. It is truly amazing, and I attribute 75% of this accomplishment to the magic of house hacking.
There are other ways to house hack outside of renting rooms too. You can buy a duplex as your first home. If you do it right, one side can pay for both. You can even be more ridiculous and rent rooms on your side of the duplex.
In “Build a Rental Property Empire,” I learned that the bank considers any home under four units a personal residence, not a commercial property. That means you can buy a four-plex with your VA loan, FHA, or USDA loans. You will also get those sweet low interest rates that a first-time homebuyer of a primary residence receives. Wow, just amazing.
Inflation vs. Rents
You can also add a finished basement, an in-law suite, or a finished attic. You may not even need to have people living with you. There are ways to rent out storage containers or parking spots on your property.
There are too many ways to list—as I said, real estate is a mindset. One last thing, house hacking allows you to buy a bigger home. No, we don’t buy a bigger home because we like nice things, we have a purpose. Bear with me.
If you can buy into a four-bedroom, three-bathroom, you have the potential to make a lot of money. You see, that means you can have two “master suite quality” room rentals—even if the bedrooms and bathrooms aren’t connected.
The important part is that each of your roommates has their own bathroom. We can charge the one-bedroom rate. With two “master suites,” we should be able to live for free with the remaining two bedrooms and one bath.
Defeat Toxic Consumerism
This arrangement is our current setup in our primary residence. It is 2500 square feet. With the two masters rented, we still have at least 1500 square feet to ourselves. Would you live in a two-bedroom, one-bathroom home for free? That is essentially what we are doing.
Conclusion. You probably don’t like the idea of house hacking. So, if you are debt-free and have $200,000 in the bank, do as you wish. If you don’t have those two things, then rethink your approach.
House Hacking is the fastest (legal) way to become rich in America. You have no start-up costs and it requires no skills—just the ability to deal with one person (or two). People are paying more than 50-60% of their income towards housing. I own three homes, and I am making a profit on all of them. Do you want to be rich?
If you don’t know how to screen tenants, read “The Book on Managing Rental Properties.” If you can get quality tenants, house hacking is almost free money. Please follow us on Twitter. Enjoy and Happy Investing.
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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