Many people find real estate investing interesting. In fact, I would go as far to say it has become a fad over the past 5 years. With so much technology and information at our fingertips, the advent of phenomenal resources like biggerpockets.com, and the oodles of real estate investing podcasts, it really has become a trendy subject and a trendy financial investment. I recognize all of this. And, because I don’t want to add to this cacophony, I’m not going to write a blog post about “How to buy your first rental property”. Those are already out there, and if you want to talk about that, I’d love to – please call me. Instead, I want to talk about other ways to break into real estate investing.
First things first. To buy an investment property, it typically will take a 20% down payment. There are creative financing options to get around this, but at the end of the day, it’s really hard to invest in real estate without any money up front. 20% is a big number, and that leaves many people with a choice? Do I buy an investment property, or a primary residence? Often times the two are mutually exclusive due to limited funds. So, can you combine the two? Can you buy a primary residence and use it as an investment or quasi-investment property? The answer is… YES! I am going to talk about a few methods you can do this…. I hope you are inspired and decide to implement one!
- Househacking. This is an outstanding tool to buy a home for yourself to live, and also use it as an investment property. The term “Househacking” was coined by Bigger Pockets. What this means is purchasing a home and then renting out the other rooms in order to have your tenants pay your mortgage. Here’s an example. Say you buy a 4 bedroom home for $200K and your total mortgage, insurance, and tax payment is $1200. If you live in one bedroom and rent the other 3 bedrooms out for $400/month, you are essentially living for free. Your tenants are paying down your mortgage, and helping you gain equity everyday. Also, the money you would have been spending on rent or a mortgage can be saved for another rental property or put back into the home to increase its value. I have heard of people doing this and making a positive cash flow off their primary residence. Cool!
- Live-in-Flip. This is a terrific option if you are handy, and have the time to remodel a home. This is literally the same as flipping a home, but instead of buying it with “hard money” or “cash” you may seek traditional financing. You purchase it as a primary residence, move in, and get to work on fixing it up yourselves. This kills the two proverbial birds with one stone: 1. You have a place to live. 2. You are flipping a property for a profit. Obviously, you need to buy the home at the right price to ensure that you can add value and increase the home’s value to a point where you are going to make money when you sell it. Another option is to fix the home up, refinance it, pull out your equity, and then rent it. You can then take the money you pulled out during the refinance and use that to purchase another property. Live-in-flips offer you an incredible opportunity to create equity and allow you to be in total control of the time and scope of work being done.
- AirBnB. This is actually the option I am the most familiar with, because my wife and I AirBnb’ed out a room in our primary residence for almost two years! It was honestly a really great experience. The first thing to note is that you need to ensure that your municipality will allow you to do a short term rental. If they do, you are off to the races. My wife and I had our AirBnB in Menomonie and we rented out a modest, yet well decorated bedroom with a comfortable bed. We would frequently rent the room out for 3-5 nights a week and charged about $35/night. AirBnB has a great insurance policy for hosts and is remarkably user friendly. If you offer a clean, cute place to stay and make it easy for your guests, you can do quite well. In 2019, Rachel and I made over $6K AirBnBing out our spare room and we used that money as a vacation fund. During 2018-2019, we used our AirBnB earnings to travel to Bali, Ireland, Scotland, and Glacier National Park without ever dipping into our own personal money. It was fun to meet all the interesting guests we had and it forced us to keep our home clean – ha! If you are a trusting person who wants a really cool experience, I highly recommend AirBnBing out a portion of your home.
These are just 3 of the many ways you can use your primary residence as more than just a residence – as an investment, too. I love working with real estate investors and I enjoy helping people get started on their investment journey. Please give me a call if you are looking to purchase your next home.
Until Next Time…
~ Tim Nelson | RE/MAX Affiliates | 715-529-0239 | firstname.lastname@example.org