Live for Free Right Out of College!
Financial Independence is when your personal assets produce enough cashflow per month that all your expenses have been met without working. This was an idea I thought about quite a bit during my senior year of college. And, I learned there were two ways to become financially independent. The first was to increase your cashflow per month; the second was to decrease your expenses per month. One of the biggest expenses is your living expense (rent/mortgage payment). And even though I was living at home to save money, I wanted to move out without incurring the expense of a rent payment.
After listening to a Bigger Pockets Podcast, I realized a “House Hack” would give me a way to move-out without paying for rent. For those who don’t know what a “House Hack” is, here is the short version: it’s when you buy a house, live in one room, and rent out the other rooms to help pay for your mortgage. The goal is to cut out your housing expense completely, and potentially gain some positive cashflow.
So, how would YOU go about doing this?
1. Getting Pre-approved for a loan
I researched the qualifications I would need in order to be pre-approved for a loan. I was very disappointed when I found the typical qualifications are:
- Past 2 years of tax returns
- Credit Score >590
- Past 2 years proof of income
I found I qualified for everything, except I definitely have not had a job for two years because I just graduated! This was a problem.
Surprisingly, I found, after a little more digging, if you’re working in the same field as the one you studied in college, your schooling can exempt the 2 years proof of income. All you need to provide is your diploma and transcript to your loan officer. This was a great little tip I had never heard of before.
The next day I called a loan officer, told him my situation, and got pre-approved for a loan the day after. It was extremely easy. The best part was my loan officer had a lender who had a program for a 3% down, conventional loan! So, if you think you don’t have enough money for a down payment, call a loan officer in your area to see what programs they have.
In Florida, they also have a state-wide program which will give you up to $15,000 towards a down payment/closing costs. So, really anyone can afford to buy if they want too.
2. Finding the Right House for a “House Hack”
Before looking for any home on Zillow, I made a set of custom criteria to help filter out houses that would not work for what I was trying to accomplish.
I wanted a home that would give me at least $500 over my PITI (Principal, Interest, Taxes, & Insurance) payment in rent. This way I could cover any maintenance/vacancy issues that might arise.
For example, if I was buying a $150,000, 4 bedroom/2 bathroom house and my PITI payment was $1000/month, I would want the rents for each room to be $500/month (3 rooms times $500/month equals $1500/month).
The criteria I eventually came up with was:
-For a 3 bedroom/2 bath, I needed to find something under $130,000
-For a 4 bedroom/2 bath, under $200,000
In my area, the 4 bedroom/2 bath was a more possible scenario.
So, I began looking on Zillow and listings with our local REIA. I ended up finding a house through a wholesaler that lists with the Central Florida REIA. It was a 4 bedroom/3 bath with 2 master bedrooms and a bonus room (potential 5th bedroom) for $185,000.
(I’ll attach pictures at the bottom of the blog).
Another bonus was that the house was located next to the University of Central Florida, which is the second biggest university in the country and growing. I thought this would work perfect for a student housing situation when it came to finding roommates.
*If you’re married or have a girlfriend and want your own space, try looking for a duplex or triplex that way you have your own unit. But, if you’re single, who cares.
3. Finding Roommates
So, you can do this after you close on the house but I think it’s better to try and line something up before you have to make mortgage payments!
Thankfully, since I am from Orlando I had friends in the area who go to UCF and were looking for a living situation, which was a win-win situation because they get cheap rent and I get pay my mortgage, plus a little extra to cover maintenance and other expenses. So, in my 5 bedroom/3 bathroom, we have 5 guys including me, paying $1850.00/month in rent.
However, if you don’t have that luxury, you can always use services like FaceBook/Craigslist/Roomiematcher/Roommates/etc.
Another great option is to Airbnb your extra rooms. This will be a little extra work (unless you hire a Superhost) but can make you more money!
(I almost did this, but found a 5th roommate at the last second).
4. Closing on the House/Conclusion
When it came time to close, I had to take a Home Owner Course since I was getting a low down payment as a First-Time Homebuyer (totally worth it).
Other than getting a few papers to my awesome loan officer, Caleb Corsair of Home 1st Lending, the process was not that bad.
I ended up receiving a great loan on the house! My total out-of-pocket at closing was $6,539.43 and my rate was 4.25%. The loan amount was $179,500, and my PITI ended up being 1292.88 (hoping to get this down with Homestead Exemption) with my first payment March 1st, 2018.
So, with the $1850.00 rent I’m receiving in rent, this more than covers the PITI, in addition to any expenses I might incur, like I said earlier.
The best part about this type of real estate investment is that anyone can do it! And, it’s a way to cut expenses and start the path to financial freedom.
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Any questions? Reach out to me via email at firstname.lastname@example.org