House Hacking!

Speaker 1: [0:08] Hello, hello, and welcome to the Awesome in Seattle podcast. Today's episode is all about house hacking. House hacking is awesome. I've done it. It's amazing. Jason, what the hell is house hacking?

Speaker 2: [0:19] Great question. So house hacking generally is using, the idea of it is to use your primary residence to, in, in a way that pays for your mortgage and your expenses. Generally, it's done through renting out units or space in your primary residence that pays f- that pays for your mortgage- Helps reduce your

Speaker 1: [0:39] mortgage payment every single month … basically.

Speaker 2: [0:40] Yeah, and the goal being, eh, the ultimate goal being that it's free for you to live in your, your own home.

Speaker 1: [0:46] Mm-hmm. Or even you make money living in your own home. Sounds like a

Speaker 2: [0:48] good plan to me.

Speaker 1: [0:49] Yes.

Speaker 3: [0:50] Sign

Speaker 1: [0:50] me up. So- Yeah. So let's, uh, introduce who we are. So my name is Christian Nossum. We are all real estate agents here with the Nossum & Nossum Group at Wilson Realty. To my right is the beautiful and lovely…

Speaker 3: [1:03] Charlotte Reynolds.

Speaker 1: [1:04] And then on the other side is…

Speaker 2: [1:05] I'm Jason. Hmm. Okay, so I'm sitting here with a mic and, like, headphones- I know … and I feel so Beyoncé right, or Britney

Speaker 1: [1:13] now. He's got his, he's got his hand, his hand over his ear. Anyways, uh, and to my left is the wonderful, gorgeous-

Speaker 4: [1:20] Sarah Kate … Speaker: always makeup done very well since the- Oh, thanks.

Speaker 1: [1:24] Yep. And- This old

Speaker 2: [1:26] thing.

Speaker 1: [1:27] Exactly. So house hacking, let's get into this a little bit more in depth. So again, the goal of house hacking is to really reduce as much as possible your monthly living expense, and you do that by owning some sort of real estate and, uh, and trying to rent out spaces within your home or your property. So some ways of doing this, from the least comfortable to the most comfortable, would be, uh, living in a trailer on your property. So you have a house with a backyard. You put a trailer in the backyard or on the side or whatever. You're living in that. Um, next would be having roommates, and actually, depending on how you do this, this could even be even less comfortable. Uh, we've heard of an author of a book actually called House Hacking. He lived in his living room, put a sheet up with one of those room dividers- rented out all the rooms and made money every single month. Um, the next one would be the most comfortable, and that would be living in a unit within a duplex or triplex, or here in Seattle you could do it, a, a single family home that has an ADU or a DADU. ADU is essentially, like, another unit in your home, accessory dwelling unit. Or you could have a DADU, which is a detached. That'd be the most comfortable. So you're not even sharing a wall. You own the house. You have a DADU in the back. You rent that out. It's really not affecting your life much.

Speaker 2: [2:58] If you wanna know more about DADUs, I have a great resource. It's this podcast. Booyah. Just go back, the last couple episodes have been about DADUs, so-

Speaker 1: [3:06] Mm-hmm … enjoy We, uh, we did a whole podcast, it's called DADU Issues, and then we did a follow-up to that where we interviewed, uh, a company that's building these backyard cottages, these DADUs. Uh, and that was an interview with Node. So check those out if you wanna learn more.

Speaker 3: [3:21] And you can also check out our last episode of the American Dream. We did an interview with Don Binnell from Node as well, and you can actually see what those units look like. They're super awesome.

Speaker 1: [3:30] Yep. Yeah, it is. They're gorgeous. Yeah. Uh, all right. So I wanna give a quick personal, I guess, lesson of what I did, history of what I did in the past.

Speaker 2: [3:39] Personal story time, I need a little, like, piano riff. Like ding, ding, ding, ding.

Speaker 1: [3:43] Hey, you're the editor. You can add those in.

Speaker 2: [3:45] It's not- Okay. It's

Speaker 1: [3:47] more of a backing melody. Shouldn't have said anything. So, uh, when I was 22, I bought a house in Wallingford. It was a duplex, a legal duplex. Had a two bedroom, one bath upstairs apartment. On the main floor and the basement there were seven bedrooms, two bathrooms, one kitchen. And I owned that house and I made 250 bucks a month living in my own house.

Speaker 2: [4:12] And you were able to maintain a relationship with a female during the entire thing that ended up being your wife.

Speaker 1: [4:18] Yeah.

Speaker 2: [4:19] So it was successful in more than one front.

Speaker 1: [4:21] Exactly. It was my first wife, though.

Speaker 2: [4:22] My… And I'm making that point as a joke, but also because, you know- Been my only wife … a lot of people, uh, view house hacking- And my current wife … a lot of people view h- house hacking as something that really impedes their life, but y- you can make it work a lot of times. Especially in Seattle, there's a lot of, uh, properties that, um, are just ripe for this type of setup- Yep … which we'll talk about.

Speaker 1: [4:42] Yep. And then after I bought that, I actually bought another home. I bought a house on North Beacon Hill before the light rail, the first leg of the light rail opened up. Uh, bought a house there that was also… It was a home, uh, two bed upstairs, one bed downstairs, uh, unit, and it was a ADU apartment downstairs, and lived in that. And I think my mortgage was only 400 bucks a month living in my own house.

Speaker 4: [5:07] Wow.

Speaker 1: [5:08] So-

Speaker 4: [5:08] Deal … Speaker: it's, it's definitely something that's near and dear to my heart. I highly recommend it to anyone that's looking, uh, into potentially owning a home, because there's lots of ways that you can make it make sense for you financially So, um, uh, Charlotte, what are some good examples of homes that would work for, for doing a house hack?

Speaker 3: [5:30] So we actually looked at one a couple weeks ago, um, as a team when we were playing our little price guessing game. Mm-hmm. That was a super awesome house. It had a lot of potential for house hacking, one of the reasons being it had a partially finished basement that had plumbing already. So that's just a really easy kind of transition to convert that into an additional living space, you know, including kitchens and bathrooms and stuff.

Speaker 4: [5:53] Mm-hmm.

Speaker 3: [5:53] Um, in addition to that, the property, um, also had a lot square footage of, like, 8,000 or something. Yeah. Like, it was a, it was a big lot for Seattle, so it had the potential to not only have an ADU, attached dwelling unit, but also a detached-

Speaker 1: [6:08] Mm-hmm … Speaker 3: um, in the back. And the lot was actually split up, like- Really

Speaker 3: [6:12] well perfectly. Yeah. Yeah. Yeah, like, it was, like, the most-

Speaker 4: [6:14] It was two

Speaker 3: [6:14] tiers. Yeah. Exactly. Yeah. It was the most perfect house. So anything with a big lot that you can, you know, put a DADU on or, like, a good, um, something already plumbed for, um, a kitchens downstairs, that kind of thing is what I always look for.

Speaker 1: [6:26] Mm-hmm. Charlotte, or I guess Sarah Kate, what's another example of a home style that could work for, for a house hack?

Speaker 4: [6:33] Um, well, you don't see duplexes very often. Mm-hmm. But, um, I've seen duplexes that people buy just because they want the square footage and they wanna build one big house and tear down the wall in the middle. But I think it's great if you can live on one side of the duplex and then rent out the other side for- Yeah … uh, some cash flow.

Speaker 2: [6:53] You see some of those in Ballard. Mm-hmm. Yeah, that's true.

Speaker 4: [6:56] Um, another,

Speaker 2: [6:56] another, uh, one that you see all over the place are these modern townhouses, these street- Yeah … three story, generally three story townhouses. And a lot of times you can have it so you have basically the first floor and the third floor are l- bedroom floors.

Speaker 1: [7:10] Mm-hmm.

Speaker 2: [7:11] And the middle floor is a shared, uh, you know, the living space where y- where the kit- the kitchen is and the living room. Um, and so that can make a really logical roommate situation because you're separated by that floor and you share the middle one. Yeah. Um, so.

Speaker 1: [7:26] We actually have a prime example, one of our current listings right now in Ballard. We sure do. Yeah. It's a town home. It has a rooftop deck. It's got a master suite on the upstairs. That's the entire upstairs. Main floor, like Jason said, that's the living floor, kitchen, dining, living room. And then downstairs it has two bedrooms, a full bathroom, uh, a laundry room, and a big storage closet. And-

Speaker 4: [7:48] Two exit points as well.

Speaker 1: [7:49] Yeah, two exit… Actually three.

Speaker 4: [7:51] Three.

Speaker 1: [7:51] That's right. Front door, back door- And a side door … and then one of the bedroom has its own access point. So it's pretty s- pretty sweet. A- and I just wanna run down the numbers so that people understand how doable owning a house like this can be if you think of it this way. So with that house- It's a $700,000 house, and people are, a lot of times go, "There's no way I can afford that." You probably can. Here's the run- rundown on the numbers. So a 5% down payment on $700,000, that's only a $35,000 down payment. 5% is the most common down payment option in Seattle. 68% of home buyers do a 5% or less down payment. Um, that blows people's minds generally when we say that, but we say it every home buyer class, and it's pretty cool. Um, your monthly payment on that $700,000 home with a 5% down payment, your monthly payment is just over $4,000 a month, including taxes, insurance, and private mortgage insurance. You're at 40 or $4,020 a month.

Speaker 2: [8:51] What interest rate are you using?

Speaker 1: [8:52] 3.75.

Speaker 2: [8:54] Thank you.

Speaker 1: [8:55] And that is- … somewhat conservative. They've been hovering right around there the last two to three months.

Speaker 2: [9:00] Yeah, it's been nice. Very nice. I'm in the market buying a house, let me tell you.

Speaker 1: [9:04] Yeah. Um, so if you… So I was at one of the open houses, uh, for this listing, and I just pulled up on Craigslist what rooms were renting for in the area, and there was this kinda older, somewhat rundown house, three-bedroom house, uh, one bath, that was very close to this in Ballard, and they were asking 1,400 for a room.

Speaker 3: [9:29] For a room?

Speaker 1: [9:30] For a room.

Speaker 3: [9:30] Wow. I've, I've

Speaker 4: [9:31] seen that. Yeah.

Speaker 3: [9:32] That is- Yep … shocking.

Speaker 1: [9:33] Yep.

Speaker 4: [9:33] It's scary out there.

Speaker 1: [9:35] So if you could, in this two-year-old townhouse that we're talking about, if you could only get… Say you only got 1,200 for a room, which I think is totally doable. If you rented out both rooms downstairs, you had the master suite, that whole level all to yourself, you'd reduce your monthly mortgage payment by 2,400 bucks. So now you're looking at 1,600 bucks… No. Yes, 1,600 bucks a month to own a $700,000 awesome two-year-old townhouse in Ballard. It's pretty awesome when you start thinking of it that way. Mm-hmm. Right

Speaker 3: [10:08] next to the breweries.

Speaker 1: [10:09] Yeah, right. Woo-hoo. Literally, like four doors away from a brewery. So-

Speaker 3: [10:12] Exactly where you wanna be.

Speaker 1: [10:13] Yeah. So it's, it's pretty cool when you start breaking down the numbers and you look at that, because what could you rent if you were in the market to rent? Could you rent a s- master suite for 1,600 bucks a month?

Speaker 3: [10:25] Doubtful.

Speaker 1: [10:26] No. Yeah. Probably not, not that's that nice.

Speaker 2: [10:29] And you're riding the appreciation wave, so

Speaker 1: [10:31] yep. You're riding the appreciation. Huge. You get tax deductions.

Speaker 4: [10:34] Mm-hmm.

Speaker 1: [10:34] Um, plus you're not wasting your money on rent. You now are reducing your principal balance on your loan every single month. It's an awesome way to go. And with that too, if you just live there, whenever you, like, don't wanna have roommates anymore, you just don't rent out the rooms anymore, and now you have your own townhouse all to yourself.

Speaker 2: [10:55] So now we can grab that idea and really, like, kind of institutionalize it towards the goal of house hacking, and what you can s- what you can do is get really aggressive here. And you get a owner occupied loan. There's stipulations in that type of loan. Mm-hmm. The main one for this conversation is that you have to live on the property for the first year.

Speaker 1: [11:17] Yeah,

Speaker 2: [11:18] at

Speaker 1: [11:18] least.

Speaker 2: [11:18] At least. If you don't, then it's not an owner occupied loan, and you, you… It's more of an investment loan, and the rates aren't as good. So there's tax benefits and just benefits to getting an owner occupied loan. That's where you get the best rates and stuff.

Speaker 1: [11:31] Yep.

Speaker 2: [11:32] And then after a year, you could actually keep that property, rent out all three units, including the- All three rooms All three rooms, sorry, and then buy something else, and either continue that again or have your own space. You know, that… So that's the- Mm-hmm … what y- when you look really into… When you really look into house hacking, people are getting crazy here and building huge amounts of wealth doing this type of thing. Yeah. So it's kind of a i- Impressive … Speaker: it's fun, it's exciting. Um, and when you start looking at the comfortability versus profitability scale, it… You could temporarily be less comfortable but make more profit, and that's kind of what house hacking's all about. Um, yeah, it's just fun. Um, in terms of being a landlord, it's really not as hard as people think. Everyone thinks it's really tough. They don't wanna deal with leaky toilets or whatever the thing that everyone talks about is. Well, and they hear horror stories, right? Yeah,

Speaker 1: [12:27] they do.

Speaker 2: [12:27] And of course, that's all you hear is the horror story.

Speaker 1: [12:29] Yeah. Talk to people that are successful landlords, and you don't get very many of those- No horror stories. Uh, a great resource for becoming a landlord or looking into being a landlord is the Rental Housing Association of Washington. Their website is RHAWA.org.

Speaker 2: [12:48] And to pronounce that, it's RHAWA.

Speaker 1: [12:51] RHAWA. Yes. Um, but it's awesome. I've been a member, uh, for, I don't know, ever since I was probably what? Since we've been… How long? Ever since. 15, 16 years at this point. Yeah. And, uh, I use all their leases. They run all my, my tenant credit applications. They handle everything, and they have classes every month that teach you how to be a landlord. They keep you up to date on it. It's, it's a great- What a great

Speaker 3: [13:16] resource

Speaker 1: [13:16] it's a great resource. So, um, there's ways out there to learn how to do this.

Speaker 2: [13:21] If you want, you can pay somebody to do that for you. Generally, if you're living in the unit- Yeah, you don't need to … it doesn't necessarily make sense, and you're trying to save money in the first place, but you can theoretically have a property management firm manage it.

Speaker 1: [13:33] Mm-hmm.

Speaker 2: [13:34] Christian, what does that generally run? Just so people have a ballpark.

Speaker 1: [13:37] So it's a yearly membership. I believe it's 120 bucks a year for the membership, and then it's an extra 60 bucks or 40 bucks a month for all of the leases and forms and all that stuff.

Speaker 2: [13:48] So you're talking about the real estate, the rental association- Housing association RARA.

Speaker 1: [13:53] RARA.

Speaker 2: [13:54] If you wanna get a- Yeah … property manager, a lot of times those run- Oh … about 10%, maybe 15%. You-

Speaker 1: [13:59] Mm. No, it's more in the 8 to 12 range. Okay. Yeah. I've seen some companies that do it for 6%. And what, what we're s- when we say percent, we're talking about percent of the amount of rent coming in. But again, if you're living there, you don't need to have a property manager.

Speaker 2: [14:15] Exactly. That's- Even if you're not even local. Yeah. You can manage properties pretty easily remotely. Yep. We have a lot of clients who do that, so

Speaker 1: [14:22] yep. Yeah, so house hacking is fun. If you are interested in learning more about it, um, feel free to reach out to us. We all get very excited, uh, about helping people learn about this and look into this. We have clients right now that are looking into it, and it's a lot of fun. It's just, it's just so fun showing them how, you know, you can reduce your monthly expenses and start building more wealth. And, you know, uh, it's slightly at the expense of some of your comfortability, but sometimes it's worth it for people.

Speaker 3: [14:55] In the long run, I'd say it's definitely worth it.

Speaker 1: [14:57] Yeah.

Speaker 3: [14:58] Yeah.

Speaker 2: [14:58] I wanna bring up one more point. So people in Seattle, we had a law implemented a few years ago that was basically a first come, first serve law.

Speaker 1: [15:07] Mm-hmm.

Speaker 2: [15:07] When you rent, a landlord rented out a unit, um, it basically s- stipulated that you had to have a set criteria that you would base your judgment on whether or not somebody, or your criteria on whether or not you'll allow somebody to, to rent the unit or not. It had to be consistent, and obviously pr- not discriminate against protected classes, and you had to go in the order of the people who applied. So you couldn't say- You had, you had

Speaker 1: [15:33] the time, you had to write on- Yep … the application what time they submitted the application.

Speaker 2: [15:37] And the idea, the intention behind the law was to reduce discrimination, um, for obvious reasons. The law got shot down, just so y'all know, be- and a lot of it was in due d- due to exactly what we're talking about. Mm-hmm. If you're living in a unit Um, you're living there. Y- y- it's more than just a business transaction where you're- Yeah … being a landlord. It's your personal residence. Yep. And so- You should be allowed to choose- You have a little more leeway

Speaker 1: [16:03] your, your roommate.

Speaker 2: [16:04] Yep. So just keep that in mind. Okay. You do have a lot more flexibility picking and choosing. The law, how it was originally implemented, if you put, put up, put like a Craigslist ad and you had like your in-law and you knew that they wanted to rent-

Speaker 1: [16:18] Mm-hmm … Speaker 2: but they didn't get their application in before- Yeah. You- … some random person did, legally you had to rent to that- Yeah … person on Craigslist. Just didn't really make sense, so. Yep. So just keep that in mind. That is something we get asked a lot because, um, people in Seattle, that law was quite surprising. Yep. And they did back, backtrack from it. Yep, it was only around for a very short amount of time. All right. Any other final thoughts from anyone? Other than house hacking

Speaker 2: [16:43] is awesome. It's getting chilly out there. The weather was changing. Now it's b- it's a beautiful day today, but…

Speaker 1: [16:50] Um, if you are already owning a house, don't forget to put the, uh, styrofoam faucet covers over your hose spigot.

Speaker 2: [16:59] You might wanna get a bag of salt. Winterize.

Speaker 1: [17:01] Yeah. Winterize.

Speaker 2: [17:01] You might wanna get a bag of salt if you have a sidewalk out front.

Speaker 1: [17:03] Yep. It's, uh, yeah, protect yourself. Don't, don't have any slip and fall accidents. Don't get sued. All right. Well, thanks very much everyone for listening to The Awesome Seattle Podcast. Don't you love this is a real estate podcast and we, the last thing we say is… Don't get sued. Don't get sued. Happy homeownership. Yay.

Speaker 2: [17:23] Bye, friends.

Speaker 1: [17:24] All right. Thanks, and, uh, we'll, we'll tell you up some more info next month.

Speaker 3: [17:28] Bye.

Speaker 1: [17:28] Don't get sued. Bye, and don't get sued. Bye.