In Episode 17, I talk to Lauren Bellis about house hacking for beginners and how it is a powerful real estate investment strategy to start your journey to financial independence.
“With a house hack, it's a little bit different than just a straight investment because when you're looking at an investment property, you're looking for a cash flow positive property.” - Lauren Bellis
This week on Real Life Planning Podcast, Cynthia will cover:
What is house hacking? [00:01:05]
What motivated Lauren to become a house hacker? + [00:02:27]
What are the key numbers to know before selecting a property? + [00:05:16]
What renovation projects can you DIY and which ones must be outsourced to contractors? + [00:07:47]
Are you the right type of person to benefit from house hacking? + [00:10:19]
How do you find the right investor-friendly agent for you? + [00:13:30]
“The numbers really matter when it comes to looking at investment properties.” - Lauren Bellis
“The closer you are to being cash flow neutral or cash flow positive in the house hack, the more attractive a deal it is.” - Cynthia Meyer
“If you have the opportunity to, during the inspection process, have a construction professional come in and give you quotes on work before you move forward with the purchasing process; it can be really a really helpful tool.” - Lauren Bellis
Connect with Lauren Bellis:
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- Email: firstname.lastname@example.org
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About the Real Life Planning Podcast
Host Cynthia Meyer welcomes fascinating guests to share real life stories of how they are realizing their financial potential. Each episode explores practical, realistic steps to create results.
Transcript - Real Life Planning Podcast - Episode 17
[00:00:06] Cynthia Meyer: Hello friends. I'm Cynthia Meyer with the Real Life Planning Podcast and today in Episode 17, we're going to be talking about house hacking for beginners with somebody who has walked her talk. This is Lauren Bellis with Urban Castle Properties in Boston, and she's coming to share her story with us about how she got started as a successful house hacker and what she would do as a financial mentor to help others follow along in her path. Good morning, Lauren. It's very nice to talk to you. Tell us a little bit about your story. What's important to know about you?
[00:00:41] Lauren Bellis: Yeah. Good morning. First of all, I'm so happy to be here. This is really exciting for me to spend time with you and to share a little bit about some of the things that I've been through so that other people that are interested in becoming real estate investors can have couple of ideas that maybe they didn't think about before.
[00:00:56] My niche in real estate investing is house hacking and it's really worked for me. Doesn't work for everybody and maybe we'll talk a little bit about both that today of why it could be a great way to get started to kind of get your feet wet in the real estate investing world.
[00:01:11] Cynthia Meyer: Let's start by defining what house hacking is for those people who are listening, who might not be familiar with this term. I think the term was coined originally by Brandon Turner, who was one of the original founders of...
[00:01:23] Lauren Bellis: Bigger Pockets. Exactly.
[00:01:24] Cynthia Meyer: What the original sense was that you would buy a home, a multi-family home, live in one unit and rent out the rest (the other unit or units in the property) in order to pay the costs of the property acquisition.
[00:01:37] Lauren Bellis: Yes.
[00:01:37] Cynthia Meyer: And for those of you that have been to the Real Life Planning site, I'm trying to take this towards house hacking 2.0, right, which is monetizing the home that you already own; different ways that you can make money from the home that you already own. But Lauren, you're an original house hacker and you got started before the term was even coined, maybe. Tell us about that.
[00:01:55] Lauren Bellis: Maybe. Yeah. And I can go even further back than that. My Nonni; my father's mother, back in the day, they moved out of the, out of Boston, moved to the suburbs, they bought a two-family house. They lived in one unit and they rented out the other. People have been doing this forever, right?
[00:02:10] Cynthia Meyer: Yeah.
[00:02:10] Lauren Bellis: So it's not a new concept by any means, but you know, the term house hacking is new. The idea that this is a real estate investing strategy is definitely new. And the idea that this can be used as a catalyst to really grow a real estate investing business is definitely more of a newer concept, right?
[00:02:27] So, my story's a little bit different or I guess everyone's story's a little bit different, right? Just to share a little bit how I got started, I really got started as a real estate investor out of necessity. What that looks like for me is, I got into a car accident and I changed how my ability to provide for myself and for my family really changed. So I could no longer, at the time, sit in front of our computer all day, because I had migraine headaches from the accident. At that time I was living in a condo. I purchased my first condo in my twenties and my family and I were getting to a place where it was difficult to financially, couldn't make the mortgage.. I had to decide...
[00:03:02] Cynthia Meyer: After the accident, you mean.
[00:03:04] Lauren Bellis: After the accident, exactly. We had to make a decision. Are we going to sell or are we going to move? What are we going to do? It's always been my plan to invest in real estate and I just wasn't ready to take that leap. And I think that's really the biggest thing for a lot of want-to-be real estate investors is, how do I get started?
[00:03:19] I just decided that since my life had changed; let's do it, I moved out of my condo; had tenants move in and I was able to live with family temporarily while we kind of started the process and started to save some money. Eventually, we had that down payment to buy a two-family house and that's how I was able to kind of start this house hacking journey. It's definitely different for everybody, obviously. That's not going to happen to the majority of people. I just needed that little bit of a push to kind of get me started and really a blessing in disguise. Because yes, it stinks getting into a car accident and having health issues. By the way, I'm much better today. But because that happened, it forced me out of necessity, to start my real estate investing journey. I was able to save that money for a down payment for that multi-family home because I had that rent coming in. I was still working at a more limited capacity. Then I was able to have that down payment to buy two-family house. So we moved into one apartment. The rent was such that it essentially just about covered the mortgage so that our living expenses were so low; we're able to save. The house I purchased needed some work, so we're able to use those funds to fix up the house.
[00:04:22] Cynthia Meyer: Gosh, Lauren, now I knew this about you before having this conversation today, but thinking about it, as you tell the story is, that was a real personal and financial earthquake and the fact that you were able to use that as a launching pad for a new successful career; I think that impresses all of us.
[00:04:40] Lauren Bellis: Thank you so much. Although it sounds a little bit dramatic, right? I think anybody could find a reason to get started. Maybe it's just you're hoping to get that promotion and you didn't get it or you had a new baby or whatever the case is; you have a life changing event. Just finding a way to set steps towards that goal; I think you could find any excuse to do it, right?
[00:05:00] Cynthia Meyer: You're one of the most determined people that I know. So I think people have a lot to learn from you here.
[00:05:06] Tell me when you and your partner were first looking for your first duplex; your first multi-family. How did you decide what your budget was? How did you decide what kind of a property you were going to look for and what renovations you would put into it?
[00:05:22] Lauren Bellis: That's a great question and it really is all about the numbers. Although, it can be a bit intimidating to think about kind of the math that's involved, there's tons of templates that you can use to help come up with the financial numbers that you'll need to ensure that a deal works.
[00:05:36] That's the foundation, right? You need to ensure that, first of all, what are the monthly mortgage payments? What's the rent in that neighborhood, on average? And you had to look at the number of bedrooms. What's the rent for a two bedroom? What's the rent for a three bedroom?
[00:05:48] You start the process of looking at potential two-family or three-family homes say, "Gee, what's the average rent in that city?" Sometimes in a city there's different neighborhoods that the rents can be completely different in different neighborhoods.
[00:06:02] So doing that homework is really so important to determine whether or not a deal is a good deal or not. Right? Because you want to obviously max out that rent. In regards to the renovation work, it can be a little tricky. Unless you are in the trades and you have a really good understanding of the general costs of plumbing, electrical work, structural, drywall; whatever work needs to go into a house.
[00:06:24] It can be a little bit difficult in the beginning, getting started to set budgets for what your anticipated renovation budget will be. That's why we really do rely on the experts, right? If you have the opportunity to, during the inspection process, have a construction professional come in and give you quotes on work before you move forward with the purchasing process; it can be really a really helpful tool.
[00:06:45] Cynthia Meyer: How did you set your original budget? Did you bootstrap into how much house you could afford based on what your monthly cash flow was? Did you talk to a loan broker first? How did you do it originally?
[00:06:58] Lauren Bellis: Because I was taking the time to save, I started talking to lenders say, "How much do I need to put down? Because I did go the conventional financing route and there's of course so many options when it comes to financing a project, if you're able to get into an FHA product because you are owner-occupying, that's a great road to go.
[00:07:16] A lot of states have different municipalities and state loan programs; you could put that lower down payment. But for us, it was really just finding a number that worked based on the cash that I had on hand for the down payment and then working backwards to take a look at what are the rents? And what do we feel comfortable paying every month out of our pocket versus what the what the tenant will be able to pay for that monthly cost?
[00:07:37] Cynthia Meyer: I know that you and your beau are really handy, right? You look like you could do stuff on HGTV right? Some of us are not so handy. So how did you figure out what to do yourselves and what to outsource to other professionals?
[00:07:51] Lauren Bellis: That's great question. In general, plumbing and electrical gets outsourced. I feel like the number one issue with owning a house or the number one cause of issues owning a house for maintenance issues is water. Floods. The pipes bursts and anything that has to do with water, it can be really costly because of the after-damage. Fire is the other one. Electrical, obviously it can be scary, but you want to make sure as a landlord and as a homeowner, you want to ensure that you're providing safe housing for your family, as well as your tenants. Making sure a licensed electrician comes in to do that work and making sure a plumber, a licensed plumber, or gas fitter, as well. Gas is the other one if you have that in your home. That's where I really draw the line. Anything else for us is fair game.
[00:08:33] My life partner Winston is very handy. I'm just confident. I'm not necessarily handy, but if I feel like if you can YouTube it, you can do it. That's how I feel, right? So we taught...
[00:08:45] Cynthia Meyer: My husband has this philosophy.
[00:08:46] Yeah, it's not always, you want to make sure you watch maybe more than one YouTube video from a couple different sources and vet to make sure you're getting someone the same advice there. We learned to do some really very specific like drywall strategies, ourselves and painting is an easy one. But even paint, if you do a sloppy paint job, you can tell. You gotta for sure, you want to invest in painters tape, at first. Make sure you take that painter's tape off while it's wet. That's a mistake a lot of people, they don't realize that while those little tips and tricks on Instagram and TikTok and stuff like that are helpful as well. I can cut in with a brush now; all my edging and it looks perfect.
[00:09:20] Winston, not so much, but that's okay. He's a great at rolling. You get that upper body strength. So, it's nice when you have people to help you. Even if it's just having some friends come over and, get pizza and beer and paint.
[00:09:30] Let's have a pizza party.
[00:09:31] Lauren Bellis: Yeah. Yeah, for sure. So we've definitely done that.
[00:09:34] Cynthia Meyer: That's interesting. Not to take a big detour into painting here, but last week we were staying in an Airbnb for a little while. It looked like the owner of the Airbnb had recently painted, but they did not use painter's tape. So like you would look up at the ceiling and there are little dark smudges everywhere you go along the edge of it. Yeah, it drove me crazy.
[00:09:51] Lauren Bellis: I want to stop at Home Depot or whatever and touch it up for them.
[00:09:56] Cynthia Meyer: So, but other than that, the paint job looked good, right? Maybe they're listening, who knows?
[00:10:00] I know you're real estate investor. You're a real estate agent.
[00:10:04] Lauren Bellis: Yes.
[00:10:05] Cynthia Meyer: And you're a house hacking expert who helps people specifically with investing in their first house hack and getting started, right?
[00:10:11] Lauren Bellis: Absolutely. Yeah.
[00:10:12] Cynthia Meyer: Let's say I'm somebody who is ready to buy their first home. Under what circumstances would I want to consider going the house hack route, instead of just saying, buying a single-family home or a condo.
[00:10:25] Lauren Bellis: Yeah. It's really a personal preference thing. And I always say it's a lifestyle trade off that you have to be willing to make because it's comfortable living in a single-family house. It's more comfortable living in a single-family house than it is say a condo because you don't have to worry about upstairs, downstairs, next door neighbors. It's more private. So, it's that trade off between comfort and profit, right? If you're other kind of person that doesn't want to be bothered by music from their neighbor's house or doesn't want to have to deal with tenants, it might not be the best option for you. That being said, maybe you can find a lot with two houses on the lot, right? So that's kind of an extreme example of house hacking with high level personal comfort, right? You have a house and your tenant has a house and you still have to deal with the tenant in that you have to make sure they pay their rent. If something breaks you have to hire someone to fix it and so there's definitely some level of discomfort from that interaction with the tenant's perspective. But then I kind of see it as a spectrum of, maybe next to that is side-by-side duplex, where you're really just showing me the one wall with the tenant and you still have...
[00:11:24] Cynthia Meyer: Like, it's a townhouse.
[00:11:26] Lauren Bellis: Exactly. Yep. And then maybe a triplex with 1, 2, 3 on top of each other which is very common in the Boston area and it's not that bad if you're the upstairs neighbor, but maybe if you're in the middle or the bottom where you have the neighbors upstairs from you, you can get a little bit, lose a little bit more of that comfort.
[00:11:39] As a house hacker, you can keep working all the way down. I know house hackers that rent out rooms in their home. So they're sharing the bathroom in the kitchen with people to essentially having roommates and that's house hacking as well; where you're having the rent come in from your boarders that are living in the home with you.
[00:11:55] Cynthia Meyer: My stepdaughter did that for a while when she first bought her home.
[00:11:59] Lauren Bellis: For sure, and I 've had roommates as well and it's definitely a way to max out your house hacking potential. Especially, say it's a three unit building. You've got one tenant on floor 1, one tenant on floor two. And then you're in one bedroom in your house that you bought and you have roommates in all the other rooms. That's a cash flow property on day one, right?
[00:12:17] Cynthia Meyer: That could really set you up to buy that single-family home by the time you're ready to live in it.
[00:12:22] Lauren Bellis: Or another multifamily depending on...
[00:12:24] Cynthia Meyer: That's true.
[00:12:25] Lauren Bellis: Depending on how you going to look at it.
[00:12:26] Cynthia Meyer: My husband, Steve, and I became real estate investors in our forties. If there's one thing we would do, if we could go back in time and tell our 23 year old selves, it would be to do a house hacking strategy. Get in a multifamily. Whatever we could afford. We're living with roommates and apartments anyway, right?
[00:12:45] Lauren Bellis: Right. Yeah.
[00:12:46] Cynthia Meyer: And we didn't know each other back then. But it certainly, if I, we'd have a lot more properties than we have now.
[00:12:52] Lauren Bellis: Yeah. Yeah, for sure.
[00:12:54] Cynthia Meyer: We were first generation real estate investors and we really didn't even think about real estate until we were in our late thirties.
[00:13:00] Lauren Bellis: Yeah, for sure. It's easy to say if only, right? But it's nice to be able to tell other people. When I see young people in their twenties and they're starting their journey, I'm glad I can kind of give that feedback. Have you considered house hacking?
[00:13:12] Cynthia Meyer: Yeah.
[00:13:12] Lauren Bellis: Even know what that is? and we can kind of set up an easy plan to explore; to see if that's a good option, right?
[00:13:17] Cynthia Meyer: Working with people who are looking for their first house hack or maybe a serial house hack where they're like you, they g o in, house hack, renovate, move on to the next project, and rent out the unit that they were living in. How should somebody look for an investor friendly real estate agent?
[00:13:35] Lauren Bellis: That's a great question. First of all, I work with a team across the country; of real estate agents that specialize in helping individuals that are just starting off as real estate investors. I'm happy to refer anybody to a real estate agent in their area, so you can reach out to me directly. But second of all, I would say, whenever you're looking for an agent go to your network. Somebody in your network is a real estate agent.
[00:13:56] You might have a cousin that you didn't realize or your best friend's uncle, or there is someone in your network that is a real estate agent. So please, before you go on the websites, when you're looking at houses and you see that pretty house and you want to click the button for more information, don't click the button.
[00:14:09] If anything, post on social media and say, " Does anyone know a real estate agent, right?" Now you have an agent, but that doesn't mean they specialize in helping people find investment properties, right?
[00:14:20] Cynthia Meyer: Right. A lot of Realtors® don't know, do not do that at all. They want to steer people towards the most expensive single-family home they can afford.
[00:14:27] Lauren Bellis: Yeah, exactly. Or just really wants to help and obviously real estate agents work off commission, so they would get paid but they can refer you. Every real estate agent either knows personally, or their broker or someone in their office, can connect you with an investor friendly real estate agent. For full transparency, that agent, your cousin or your uncle or your best friend's sister, whoever it is, they might get a referral fee for referring you to another agent.
[00:14:52] But at least it's somebody in your network that you can go to and say, "Hey, I worked with Joe that you referred me to, and it's not working out. Is there someone else that you can suggest that I can work with?" My answer is stick within your network and work with either someone that can refer you or feel free to reach out to me. I'm great at connecting people that are looking for investor friendly agents.
[00:15:10] Cynthia Meyer: What role would an investor friendly agent play in looking for and negotiating for that ideal house hacking property for the newbie ?
[00:15:19] Lauren Bellis: Yeah, and I think the biggest difference here is understanding how the role that numbers plays in the equation, right?
[00:15:25] Cynthia Meyer: Yeah.
[00:15:25] Lauren Bellis: The math involved with looking at your debt service or your principal and interest on your mortgage, the taxes in the community and the insurance; especially when you're looking at flood friendly areas...
[00:15:36] Cynthia Meyer: Mm-hmm
[00:15:36] Lauren Bellis: ...that might be in flood zones. Then taking a look at additional expenses of an average maintenance cost every year. Any capital expenditures that need to be done. If it's separately metered for electric and or gas. If you'll be paying water and sewer bill.
[00:15:50] Step by step, they should be able to kind of help you keep track of the expenses in a property or at least ensure that you are taking a look at the expenses in that property.
[00:15:59] They should also be able to run comps for the rent in that area for you ,as well. They should be able to develop a comparable analysis report of rental amounts in the area where you're looking at a property. If they know you're looking at a two-family house; each unit has two bedrooms. They should be able to pull up a report for you that looks at all of the recently rented apartments that are two bedrooms within a certain area within that house and give you a really fair estimate of about what you would be getting for rent for that unit. Now you have your numbers. You have your income coming in, you get your expenses going out and that's how you can determine if a property will work for you.
[00:16:35] With a house hack, it's a little bit different than just a straight of investment because when you're looking at an investment property, you're looking for a cash flow positive property. You're hoping to get a property that has more rent coming in than it does expenses going out. When it comes to a house hack, it's a little bit different because even if you are not cash flow positive, you are decreasing your monthly cost of living. An easy way to say this is, you buy a duplex and just make it easy that, the monthly expenses for that duplex is $1,000. If that duplex just had renters in it and each apartment rented out for a $1,000 each, that's a thousand dollars a month profit , but if you're living in it and you only have that $1,000 coming in, you're essentially living there for free because you are you're occupying the unit. Yes, you'll have to pay for your electric bill, your gas bill, your internet bill, but you're not having to contribute towards that mortgage.
[00:17:27] Cynthia Meyer: That's right.
[00:17:28] Lauren Bellis: The numbers really matter when it comes to looking at investment properties.
[00:17:31] Cynthia Meyer: The closer you are to being cash flow neutral or cash flow positive in the house hack, the more attractive a deal it is. But many people start house hacking even though the rent from the other unit or units doesn't completely cover all the expenses of the property, but it allows them to build equity or wealth at the same time as they're lowering their total cost of living. So maybe they have more money to put in their 401k plan or save for the down payment on the next property.
[00:17:58] Lauren Bellis: Exactly. That's where we're at with our first one. I think the tenant and the other unit covered most of the expenses and we only had to pay $300 a month towards, it was like...
[00:18:07] Cynthia Meyer: Wow, that's amazing.
[00:18:08] Lauren Bellis: That part of the average water and sewer bill, it was like $50 towards the mortgage or something like that. Imagine paying $300 a month in rent for a four bedroom apartment.
[00:18:17] Cynthia Meyer: Oh, that's amazing.
[00:18:18] Lauren Bellis: That's happening everyday.
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