January 29, 2023
Recently I was hosting a couple at one of my Airbnb properties.
But this couple was different.
They were different because just a few years before, they had been a client of mine when shopping for houses in the area where I live.
They were a fantastic client and a group you wanted to put the extra effort into.
We toured endless houses and scoured the MLS and Zillow for other options to go look at.
Both the husband and wife had good-paying jobs that were earning them north of $300k/year as a couple.
As a result, they were looking to buy their first home together for roughly $1M-$1.2M.
That number may seem daunting, but keep in mind that interest rates were at all-time lows.
After about the 20th property, I suggested something a little more creative to my clients.
What if they house hacked this?
For those that don’t know what house hacking is, I will give you the 30-second pitch on it, but you can read more about it here.
House hacking means finding ways to generate income from your home.
Traditionally, house hacking meant buying a multifamily property, living in one unit, and renting out the others so that the tenants pay the owner’s mortgage, and the owner builds equity while maintaining the property.
So back to my client, I suggested they look for a multifamily home in the area where they could live in one unit and rent out or Airbnb out the other units.
The clients were interested in learning more about it and kept asking educated questions about how it was done.
That is until they popped THE QUESTION!
How much will this cost me?
As soon as they asked me that question I knew it was over.
Not because the cost is not an important factor when it comes to buying real estate, but because a savvy investor asks how much will this make me?
See buying real estate is only a cost if you are unable to create positive cash flow out of it.
That’s why Robert Kiyosaki, the author of “Rich Dad, Poor Dad” explains right off the bat that your house is not an asset, it is a liability.
Don’t believe me?
Stop paying your mortgage on your house or the property taxes and you will quickly find out who owns the house that you live in.
Back to my clients and their housing search.
They were looking for a single-family or condo between $1M-$1.2M, but when I told them to go the multifamily route they would be looking at a cost of nearly double that.
The average person and the average investor would immediately experience a panic attack just by the sticker shock.
Unfortunately for this couple, they were your average investor.
Despite their medical school and MBA backgrounds, they couldn’t wrap their heads around how their first home purchase could also be their first real estate investment.
Ultimately, they ended up sticking with renting.
But in hopes that you don’t make the same mistake that countless others have, here is what the numbers would have looked like for my clients.
Do you see the difference now?
If my clients had gone with the multi-family they would have made $28k/year in profit vs it COSTING them roughly $60k/year to own their single-family home.
Funny enough my clients and now AirBnB guests remembered the same conversation we had a few years before.
After they checked out, the wife shot me a message, “It’s killing me that we didn’t house hack when you told us to, I get it now!”
Don’t be like my clients, find ways to make real estate a profit center vs a cost center.
PS. If you haven’t read Rich Dad, Poor Dad, privately message us back here for a free copy.