House Hacking is an excellent strategy to build financial wealth.
However, if you haven’t house hacked before, it can be challenging to understand the real benefits despite reading articles such as:
To provide an inside look at a real house hack, this post is a detailed account—including numbers and stories—of my first house hack so that you can learn from my experience.
House Hack Property Details
Here is the overview of my first house hack property:
- List Price: $450,000
- Purchase Price: $440,000
- Bedrooms: 5
- Bathrooms: 3
- Square Feet: ~2,700
- Location: West of Denver
- Loan Type: Conventional
- Down Payment: 5%
- Interest Rate: 4.625%
This property is a ranch-style single-family home. Despite being in the Denver area during a boom in the real estate market, this house came on the MLS in the dead of winter and sat empty for over 30 days before going under contract (believe it or not, 30 days is a lengthy listing time in this market right now).
There were two reasons that most buyers passed on this property:
- The basement has a private entrance and has a 2br/1ba apartment (or mother-in-law suite), complete with a full kitchen and laundry.
- The ensuite master bathroom didn’t have a vanity or sink. Instead, it had a stacked laundry machine.
While these two things prevented most buyers from putting an offer on the place, they were both excellent opportunities for me!
The layout—specifically the apartment in the basement—is the primary reason I liked this house so much. It is incredibly flexible for a house hack and long-term rental property because I can rent the house:
- Room by room
- As two units (3br/2ba upstairs and 2br/1ba downstairs)
- As one unit for a large family
- As one unit for a multi-generational family
All four of these arrangements are excellent options to fill the house with tenants.
The second reason I like this house so much is because of the location; it’s 15 minutes away from downtown Denver, has easy access to the mountains, and is within walking distance to downtown Lakewood where there are lots of shops, restaurants, bars, etc.
House Hack Offer and Negotiations
Because the house sat on the market for a month, another buyer put a low-ball offer on the place one day before me and the seller accepted. I put a backup offer on the property the following day for $10k under list price, which was higher than the other buyer’s contract price.
After a few days, the first contract fell through, and the seller accepted my backup offer!
I was excited to be under contract with my first house hack and began moving forward with the due-diligence stage. Aside from the apparent repairs and updates, all of the house’s significant components checked-out during the inspection.
The one red flag was from the Radon test in the basement; the levels came back higher than the EPA recommends without a mitigation system in place. With that, we requested the seller install a radon mitigation system (approximately $2,000) in the basement and extend the warranty to me.
With the radon mitigation system in place, we moved on to closing. I secured a conventional loan with an interest rate of 4.625% (historic lows at the time) and put 5% down.
The close was a thirty-day process, and everything went smoothly.
Immediate House Hack Repairs and Updates
I was ecstatic when the keys officially became mine, and I instantly jumped into repair/update mode so that I could bring in tenants as soon as possible.
I planned to rent the basement while living upstairs, but I needed to complete a few significant projects to make it rent-ready. These included:
I had to move the upstairs laundry (located in the master bathroom) so that the upstairs master bathroom was functional, and both levels had laundry.
While I could have done this after tenants moved in downstairs, the main water valve and all utilities are in the basement. Additionally, since the new laundry location would tie into the downstairs laundry/kitchen lines, I wanted to make sure the new layout worked as planned before someone lived downstairs.
After all, living in a flood or a construction zone during your first month in a new place isn’t the first impression I want to set with new tenants.
The upstairs had a large dining room area, as well as two large living room areas. Based on the plumbing and electrical of the house, it made the most sense to close off a walkway from the kitchen to the dining room and convert it into a large laundry room.
I do most DIY projects myself because it saves a significant amount of money, and I enjoy learning the skills. However, since there was a lot of plumbing involved with this project, I decided to hire a plumber to:
Move the water lines in the master bathroom and convert them from laundry to sink hookups.
Install a new washer box in the new laundry room and route waste and water lines to the washer box.
Update the basement washer box and water lines to code.
This work cost $1,923.12.
2. Egress Windows
The two bedrooms in the basement were semi-conforming because they both had doors, closets, and windows. However, the windows were not egress by code requirements.
My renters’ safety has been a top priority to me from day one, so before anyone moved into the basement, I wanted those windows up to code.
I called several contractors for bids. After some negotiations, I found a great contractor who would pull all appropriate permits and install egress windows for $6,000 ($3,000 each).
After finalizing the contract, the crew started work the next day. They knocked out the project in about four days—no small feat for digging the wells by hand, cutting through the foundation, installing the new windows, completing finishing, and having it all approved by the city inspector.
While this was a substantial chunk of change to drop on a project right after moving in, it was beneficial because it improved everyone’s safety in the house (#1 priority). It also instantly enhanced the value of the home.
It instantly enhanced the home’s value because you can list non-conforming basement bedrooms as bedrooms in Colorado.
However, valuations for bedrooms don’t fully “count” unless they’re up to code. Therefore, by installing the egress windows and having the work approved by the city, I officially made it a five-bedroom house vs. a three-bedroom house.
Many states have little quirks like this in regards to the way they appraise houses. Research what your local regulations are so that you can identify opportunities to increase your home value.
3. Drywall and Paint
With updated laundry and new windows downstairs, some areas needed drywall patching. I patched those areas and then painted all of the walls downstairs to give the unit a more updated look.
4. New Laundry Machines
The laundry machines downstairs were on their last leg. Since I needed to move the stackable unit upstairs, I decided to get rid of the older machines and move the stacked unit downstairs, which meant I needed new machines upstairs. I found some energy-efficient units on sale at Home Depot and purchased them.
To reduce the cost of this purchase, I leveraged my credit card perks. I receive 6% cashback at grocery stores on my credit card. Therefore, to receive an additional discount, I purchased Home Depot gift cards at the grocery store and then bought the washer and dryer from Home Depot with the gift cards. This strategy effectively saved me another 6% off of the machines.
The total cost with delivery and taxes included was $1,415.72.
I could have saved money by purchasing cheaper models, but these models will help save on energy and last longer. In my opinion, the extra $500 upfront is worth it for the energy savings and extended use.
Timeline of Repairs and Updates
I moved into the house in March. After getting everything unpacked, etc., the work took about two months. This time frame was longer than anticipated, but it was also reasonable in hindsight, given everything that goes on as a new homeowner, securing bids, working with contractor timelines, doing a significant amount of work yourself in the evenings, etc.
My biggest mistake came once the work was complete as I tried to fill the basement.
Finding Tenants for the House Hack
I knew that if I rented the basement by room, I would earn more money than if I rented the basement as a single unit.
Thus, I listed each room for $800/mo, including all utilities—the going rate for a room in the Denver area.
I thought it would rent quickly, but I soon learned the following lessons:
1. If Tenants are Sharing a Place, They Like to Know Their Roommates
I quickly ran into this “chicken or the egg?” effect; someone would come to look at a room, express interest, and then ask who would be living in the other room. When I said the other room wasn’t leased, they typically started to withdraw.
The notion of signing a year-long lease and not liking the stranger that moved in after them was a situation most didn’t want to enter.
2. Professional Photos Make a Big Difference
Upgrading your photos’ quality on the listing makes a big difference in the number of inquiries you receive and the price you can charge.
I knew this deep down, but I didn’t take action on it. I used photos that I took with my phone and quickly edited them before posting, but they weren’t professional quality, and I think I received fewer inquiries as a result.
3. Open Houses are More Efficient Than Single Showings
When people sent messages inquiring about the listing, I would set up a tour.
Many times, people flaked and didn’t show. When people did show up, it usually took 20–30 minutes to greet them, show them around, answer questions, and show them out.
After several no-shows, I decided to establish open houses and tell people when they could tour the place, which was much more time-efficient.
4. Always Require a Security Deposit Before Agreeing to Any Move-In Date
After one month of showings without any tenants, I became more anxious to fill the rooms.
Luckily, I could handle the mortgage on my own, but I was house hacking for a reason, and I wanted to see those monthly savings sooner rather than later.
One weekend, a nice woman who met all of the requirements toured the place and said she wanted to move forward. I gave her the lease to sign along with the security deposit information. She said she didn’t have the security deposit and the first month’s rent at the time, but she would pay it all on the day she moved in.
Desperate for something, I agreed upon a move-in date, and I decided to let her turn in the security deposit, first month’s rent, and the signed lease on the day she moved in.
The move-in date was two weeks away, and given the “chicken or the egg” problem I was encountering with filling the two rooms, I thought it would be worth getting one person in there. That way, when others toured the place, they could meet their roommate and feel better moving into a known situation.
Two weeks later, I sent her a message on the day she was supposed to move in, asking what time she’d be at the house so I could give her keys and get the lease. No response.
I thought maybe something terrible happened to her, so I followed up the next day to ask if she was okay and see when she would be at the house. No response.
Three days later, I followed up again. No response.
Finally, five days after our agreed move-in date, she replied and said she decided not to move.
This felt like a big hit because someone backed out on a deal without notice, and I lost two weeks trying to fill the place.
Lesson learned: Always collect the security deposit to secure a unit/room.
5. It is Simpler to Rent as a Whole Unit
Since I was about a month and a half in trying to rent the basement by room and striking out, I decided to relist the basement as a 2br/1ba unit for $1,475/mo, including utilities.
As soon as I did this, I instantly had far more interest in the place.
A few days after listing it this way, a couple toured it and said they wanted to move in. I stated the security deposit was due with the lease if they wanted it, and they immediately left to get money from the bank, returned within an hour, and signed the lease.
They moved in a week later, and they have paid rent on time every month since then.
6. House Hack Rent is Better Than No House Hack Rent
In hindsight, I was comfortable knowing that I could cover the mortgage independently, and I was holding out to fill the downstairs by the room to make $1,600/mo ($800/mo per room).
However, by sticking with the strategy that wasn’t working, I lost out on two months of rent ($3,200 total at the $800 price point). By renting it as one unit, I quickly locked in $1,475/mo, just a $125/mo difference.
That $125/mo difference over the year is just $1,500. Had I rented the room sooner at $1,475, I would have come out ahead on the year rather than losing out on the $2,950 (two months of rent at $1,475).
Lesson learned: get quality tenants placed ASAP, even if the rent price is slightly lower than you would like. Rent is better than no rent, and you can always raise the price to market value when you renew the lease.
House Hack Numbers (Living In House)
Now that you understand what type of house I purchased, the work it needed, and how I rented it to tenants, let’s look a the numbers:
The table above is the breakdown of costs for the first handful of months in my first House Hack.
You can see here that the first four months of my house hack were fairly brutal regarding my costs. Not only did I pay the ~$10,000 in repairs and upgrades, but I also ate four months of higher costs since I wasn’t able to fill the basement.
The good news is that the hefty expenses were temporary. My girlfriend contributed $550/mo, which helped a lot, and then tenants moved into the basement and began paying rent in July.
Despite the hiccups and expenses, July is where you start to see the power of House Hacking.
What was near $3,000/mo in costs to own a house dropped to less than what I was paying for a 400 sq ft studio downtown.
I was excited about this setup and accomplishment, and I was content to keep things where they were as a result.
However, in October, interest rates dropped a full percent from the interest rate I secured when I purchased the property. With that, I decided it would be worthwhile to refinance and save ~$200/mo on my mortgage.
It cost a little bit of money to refinance, but I made that money back in about 19 months with the monthly savings. Given it’s a 30-year note, locking in the long-term savings was worth it to me.
Because I refinanced, I didn’t have a mortgage payment in October, and my out of pocket costs moving forward dropped further to around $700/mo depending on utilities.
I was thrilled with this number. Paying $700/mo allowed me to increase my savings rate while simultaneously building equity in a hot real estate market.
The Examined Wealth Approach to Roommates
You may be wondering, “But that’s just with the downstairs…don’t you have more rooms to rent upstairs?!”
To that, I say, “You are correct.”
The upstairs portion of the house is 3br/2ba. My girlfriend and I lived in the master bedroom, and I used another bedroom as an office since I worked from home full-time.
The third bedroom was available, and I considered renting it out because If I did, I could have charged $700 or $750 and lived rent-free.
Furthermore, if I were single and didn’t work from home, I could have rented out both spare bedrooms upstairs and made approximately $600/mo of profit while living there.
I point this out to show that even in extremely hot and pricey markets like Denver, house hacking is a compelling strategy.
However, the tradeoff in our minds wasn’t worth it to rent out the other rooms. We liked having our space, and we liked having a spare bedroom to host our friends and family when they visited. For me to pay ~$700/mo and my girlfriend to pay $550/mo with increased savings rates, both of us still felt like it was a win without sacrificing our quality of life.
This was an Examined Wealth call. The quality of our personal lives and relationship was worth more than the extra $700/mo, and we’re grateful we prioritized those things over the money.
You may have different views, and that is okay. It’s essential to do what makes the most sense for you, your goals, and the life you want to live.
Live-In Flip, House Hack Style
While living in the house for about two years, I increased the value project by project as cash was available.
First, there was no dishwasher in the kitchen, so I built a wall, rerouted electricity, and moved the refrigerator to install additional counter space and a dishwasher. I also got all new appliances to help maximize rent.
Note that I didn’t want a full kitchen reno, so I kept the existing tile countertops and added butcher block to add counter space over the new dishwasher. Is it going to make its way to HGTV magazine cover?
Is it functional and okay with renters?
Second, there was an enclosed hot tub right off of the upstairs kitchen. It was a gross room with disgusting green carpet, and the chemical smells from the hot tub lingered into the kitchen. It wasn’t an appealing setup, and I didn’t like the long-term electrical cost associated with running a hot tub in a rental.
I decided to get rid of the hot tub and turn the room into a three-seasons room of sorts. It’s great as a dog room or gear room, which are both significant value-adds in Colorado.
Third, I minimized the landscaping so that it is easier to manage long term.
The house had large bushes that were mostly dead, overgrowing onto the sidewalk, and dropping needles everywhere. I removed all of them and cleaned the rock around the house for a cleaner look and more manageable maintenance long-term.
These projects were done on a budget and enabled me to increase the rent price for the upstairs.
Moving Out and Renting The Full House
The basement tenants have been phenomenal. COVID-19 hit a few months before their lease renewal, and since they were excellent tenants up to that point, I decided not to raise the rent. Learning my lesson, I recognized that consistent rent was better than no rent, and I didn’t know how hard it was going to be to find new tenants during lockdowns.
Living in my first house hack empowered me to save a down payment for my second house hack in under two years.
After upgrading the upstairs and moving out of House Hack #1, I rented the upstairs for $2,300/mo, including utilities.
Renting the basement for $1,475 and the upstairs for $2,300 brings the total rent to $3,775.
Expenses will stay about the same as there is only one more person in the house than when we lived there. With that, I expect the property to cash flow approximately $750–$800 per month, depending on utilities.
This is a great start and will only improve over time as rents rise, and PMI drops off.
Was My House Hack Worth It?
Sure, it came with some added costs and hiccups along the way.
However, I acquired an asset, increased my savings rate, built equity, and now have positive monthly cash flow after moving out.
I consider all of that a big win.
If you want to learn more about House Hacking, read House Hacking 101: Everything You Need to Know About House Hacking.
If you found this deep-dive article helpful, please sign up for Examined Wealth emails and keep an eye out for my House Hacking Analysis #2 coming soon!