Is Renting to Friends a Huge House Hacking Mistake?
In this episode of House Hackerz with BiggerPockets, I’ve got a classic love story for you: Boy meets girl, they fall in love and get married, then they do their first house hack.  How does it all play out?  I’m talking with Walker and Nina about their decision to house hack in their first home, and why they violated the cardinal rule: do not rent to friends.  Good news–this story has a happy ending.
Two Learning Options!
  1. Watch the YouTube video (at the bottom.)
  2. Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the video.

Going against Traditional Advice: Renting to Friends

Walker had the idea to house hack the first home he and his wife Nina purchased.  To get Nina on board with the idea, she had particular requirements and wanted to know the people she would be living with.  Luckily, a lot of her bridesmaids also ended up in Denver, too. 

Living with friends goes against almost all of the traditional house hacking advice out there.  It can be harder to be an objective landlord when you have a personal stake in your tenants, and it can hurt friendships to learn that the person you like is not someone you want to live with.  Jeff White even talked about this issue in an earlier episode.  

Why did living with people they know work for Walker and Nina?  Before selecting their roommates, Nina and Walker sat down together to draw up a roommate agreement that would clearly outline everyone’s responsibilities.  These responsibilities applied to shared spaces like the kitchen, bathrooms, and laundry.  Everyone, including Walker and Nina, were expected to clean up after themselves in a timely manner. 

All house hackers should familiarize themselves with Mrs. Murphy’s exemption for rental properties.  Normally, landlords are responsible for following the Fair Housing Act and not discriminating against renters.  This exemption applies to landlords who live in the property they’re renting out and gives them more leeway to set criteria about the people living there.  Make sure you understand both the Fair Housing Act and Mrs. Murphy’s Exemption before you start renting out your property.

Converting Their Home into a House Hack

Walker and Nina bought a four bedroom/three bathroom home in Denver.  They stayed in the primary bedroom and rented out the other three bedrooms. 

Two of the bedrooms share a bathroom, so they were each rented for $825.  In the basement, the bedroom has a private bathroom and is more private.  They originally rented out that room for $825, but after their first roommate moved out, they charged $950 for this premium space.

Moving onto Property #2

After a year, they were ready to move onto their next property.  Their original plan was to keep house hacking, but by the time they were ready to move, they decided on a Nomad strategy instead. 

Since their roommates were also moving out at the same time, they decided to rent the house on one long-term lease rather than continue doing the room by room rental strategy.  They were able to get $3650 per month, which made the decision to sign one lease even easier.

When Walker and Nina started their house search, their lender told them to get a signed lease and security deposit for their current home before going under contract on a new property.  They found renters right away, and signed a lease that would give them six weeks to find a new home. 

Finding the new property proved to be more stressful than anticipated.  They looked at 50 houses and made 8 offers before buying their second house.  Looking back on it, they recommend holding off on finding a renter until you identify the house you want to live in. 

Adapting Their Investing Strategy over Time

At first, Walker and Nina were gung ho about house hacking and wanted to acquire 10 properties in 10 years.  After buying their first two properties, they realized that buying new homes and moving regularly requires a lot of time and energy. 

After a year in their second home, they decided to move back to their original house just by themselves. 

Instead of buying house hack #3, they just closed on a vacation home in the mountains with Walker’s parents that they plan to use as a short term rental.  Even though their third property isn’t what they initially envisioned, they’re much happier with this plan. 

Remember, real estate investing is a marathon.  It takes decades to build up your portfolio, and almost every investor’s plans end up changing over time.

Walker and Nina’s House Hack Stack

Why are Walker and Nina so pleased with their updated investing strategy?  Taking a closer look at their house hack stack shows why.

They’ve house hacked two properties so far, paying for both with just 5% down.  Their current portfolio is worth over $1MM, and they have $250K in equity from just one of those properties.  This equity gives them flexibility to try out other investing strategies that don’t involve moving or living with roommates. 

If they keep making smart moves and redeploying their equity, their portfolio is going to grow dramatically over the next 10, 20, and 30 years. They’ll be able to retire early and enjoy life.

Start Building Your House Hack Stack

Want help figuring out the best investing strategy for you?  Reach out to us for a free consultation.  We’ll help you refine your long term goals and figure out the best way to achieve them.  

YouTube Episode

Is Renting to Friends a Huge House Hacking Mistake?

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