In this episode we’re going over the numbers of how we’re planning to live rent free – here’s our expenses and income!
We actually got our expenses down more since this video because we got the home for $270k instead of $280k cause of some new updates. May make a future episode about it!
How We’re Living RENT FREE (Airbnb HOUSE HACK)
Transcription
Below is a transcription of the podcast. This transcription was taken from Otter.ai so it might not be completely accurate:
Hey guys, it’s Sharon from digital nomad quest. And this is Sean with everything, Rei and today we’re gonna talk about how we’re planning to live for free through an Airbnb house hack. Now, if you guys are new to this channel, welcome at all about teaching how to build passive income, become financially free and design your best lives. So get interested in that make sure to subscribe and hit the bell button to be notified of my latest videos, make sure to subscribe to Sean’s channel where he talks all about real estate investing. So we find a great way to grow your wealth is to save as much by reducing your expenses and putting that money into investments. So we’re going to talk about House hacking, which is a great way to do this. And it’s a great way to get into real estate investment. So first of all, Shawn, what is house hacking?
So house hacking is when you have a property and you rent out the spare rooms or other units to other people, collecting the rents and lowering your total cost.
And there are many ways to house hack. So make sure you guys check out my previous video on House hacking where I talk all about it. But basically, you could buy a house and rent room by room which actually, Shawn, you have done right?
Yeah. So when I bought my house in the Bay Area about five, six years ago, at first, I just moved in there and I was all by myself, but it was a pretty big house for just one person. So slowly over time, more my friends were moving from Los Angeles to the Bay Area. And I said, Hey, instead of renting out a whole apartment for yourself, why not just live with me, I’ll rent you a room at pre discounted price because you’re my friend. And eventually we fill up the entire house with other people. But by reaching out each room to each individual person, I end up lowering my cost of living expenses to basically zero
Yeah, so that’s a great way to reduce your expenses and other ways are if you bought like a multifamily property, a duplex triplex or four Plex, and you rent it out by unit and that way you would have a little bit more privacy than by renting out by room. Again, there are many other ways to do so check out my other YouTube video on this. Now in our scenario, the way we’re doing it is we’re actually getting a place in Dallas. But we’re going to Airbnb out our place in the Bay Area to offset the cost of our mortgages. So we’re gonna have two mortgages, but hopefully, it’ll be made up from the Airbnb rental income. So I wanted to break down the numbers here today.
So I purchased my property in the bay or back in 2015. And here’s some numbers that are fixed costs for this property. So every year we spend around $4,500, in property taxes, that’s being around $375 per month, every year also pay $104 for the insurance, so as it being $67 per month. On top of that I have my mortgage and my flood insurance combined together, which costs $1,857 per month. So these a grand total of $2,299 of my P itI. So the principal interest taxes and insurance payments. On top of that we pay around $300 per month in utilities. So that’s like for high speed internet gas, electricity, and sewer slash water, which is a total of $2,589 per month, these numbers are pretty low relative to what you’d get nowadays in the Bay Area. But again, I bought this property quite a while ago,
here’s some of the footage of the Airbnb so you guys can check out what it looks like now room by room. It’s kind of nice right now. So we fix it up a lot. We fixed up the bathroom, we fixed up the fence in the back, we fix up the paints, we clean up the entire place, we moved all the stuff out to our other place. And we just got this totally Airbnb ready for our guests who are staying there right now. And let’s also look at our other expenses when we move to Dallas. So the property we purchased was at $280,000, I kind of want to talk about the process with that property, actually. So I saw this property listed about two months ago, I had been watching the Dallas market for quite a while now. And I saw it come up and then it went pending, like pretty quickly. So I was like kind of sad. But I was thinking, you know, we’re gonna do it later in the year. So we shouldn’t worry too much. We’re gonna look at properties later. But then it came back up while we were driving back from LA actually. And during the road trip, I was like, Hey, this is an interesting property, we actually call the agent and stuff like that you looked at the property, and you actually liked it. And you were like, Okay, let’s just do it. So we call them we found out that the property went pending and then went back on the market because the buyers finances didn’t go through. And we noticed that this property was basically like a fix and flip. So we knew that this property is trying to be flipped right now, we knew that the previous buyer actually put in an offer at $290,000 when the listing price was $277,000. And we knew that the buyers finances didn’t go through. So they are looking for another buyer.
Yeah, so since we really liked this property, it was a very good location, we knew that we could get it for basically $209,000 with no contingencies to accept our offer. So I think in case they just offered 290 K offers
now I thought Yeah, we could offer 290 But then I thought the seller who’s a flipper is probably in the mindset of let’s just accept anything that’s above listing and you know, is a clean offer. And if we’re gonna do no contingencies they’re probably going to accept right so we’re thinking, Okay, what if we just went five above asking, which was $282,000 after the agent walked through the property, so he actually FaceTimed us and showed us the property. We were kind of like, okay, we think about a little more and we also saw the inspection report later and we’re like, you know, what, what if we just did to 80,000 Right. So just a little bit of of asking where we’re like, you know what, this is still like a Good feeling where you put it at 277. But you got a little bit more than what you’re asking for. And it’s a clean offer. So they don’t have to worry too much about it not going through, I felt like if we did that offer it would actually go through. And another thing we decided to do was we put a deadline. So the agent told them that if you don’t give us an answer, by the next day at 5pm, we’re going to withdraw the offer. So that gave them a little bit of pressure to actually take our offer. And what happened also was that they had a bunch of showings, but no one actually offered anything yet. They’re saying, Okay, we’re gonna make an offer, but no one actually did it. So I was thinking they probably are panic, they want it to be sold. So we decided to put in that specific offer and actually went through. So they basically got it sold within like a couple of days, right. So it’s probably a good feeling on there. And it’s good feeling on our end that we got it at a good price. Now let’s break down the numbers for this property. So we’re getting at $280,000. But we’re actually just putting in a 5% down payment. So traditionally, most
lenders recommend you put 20% down for owner occupied property. But for conventional financing, you can go down to 5%. However, you do have to pay mortgage insurance for that lower down payment. For us, we think that holding on to our capital now is better than making those extra payments. So we don’t mind making those extra payments, if it means we only have to put 5% down. So we think about it, we’re buying a property for $280,000, but only putting in 14 grand plus closing costs. So it’s actually pretty beneficial for us. And then like we mentioned before, the Airbnb that we’re doing in the Bay Area will cover all of our payments for both properties. So it’s actually pretty good deal for us. So I guess going back to it down payments mean $14,000 We’re estimating, you know, another $4,000 in total closing costs. That means closing costs that go to the title agent, escrow agents, notaries plus lender fees might also be some prepaid interest here and there prepaid taxes here and there. So you know, we might be coming at pocket a little bit more than 18 grand when it comes down to it. Now another thing is that we are licensed agents here in the Bay Area, most agents across the nation will let you get referral bonuses if you refer them clients. So for example, if I don’t work at a certain market, and I refer a client to someone else, that other agent usually will give us 25% of their final commission towards us for referring the client. In this case, we are referring ourselves, so we’re getting 25% of their commission that they can use towards closing costs. At the end of day, it’s not a huge number, it’s probably gonna be like 1500 bucks. But that’s not that right 100 bucks that goes towards our closing costs.
So that is a tip. If you guys are licensed, you guys can get a referral fee by referring out so make sure you guys do that. Now let’s break down the estimated numbers. This is not like final, but this is kind of what we think it’s going to look like.
So for loan, we have a 30 year fixed mortgage at 3% interest rate.
And we believe that principal and interest will equal about $1,121 property taxes might be around $205. So homeowners insurance is already locked in and we’re going to be paying $87.33 every month for that. And since we’re doing a 5% down payment, we’re going to have mortgage insurance for $166. Now totaling all of that up it’ll be $1,579.33, which is basically an estimate but that’s pretty good price per month. And our property is four bedroom, two bath you guys can see a few pictures are here. Pretty nice. Again, it’s flipped, so we don’t have to worry too much about more repairs. We did check through the inspection report. And there were some things that were messed up. But then we dug further and it sounded like the sellers actually made all the necessary repairs to fix the ones identified in the inspection report. Now totaling the expenses from the Dallas property and the Bay Area property we get about $4,178.33 for the expenses. This doesn’t include utilities for the Dallas property, I have no idea what that’s gonna look like maybe we tack on like $200 a month for that. So that might make it look more like 43 $78.33 so that means our Airbnb needs to start pulling in that much for it to cover the expenses for both of our properties. Now we actually already have a booking right now we have some Tesla interns staying at our Bay Area property right now they’re saying for 51 nights, and they paid $8,796.32 and the total paid to us from that is actually $7,713.44 After Airbnbs cut so on breaking that down monthly, it’s about $4,530 that we would be taking home from that. So that’s good news for us because the property had no reviews at the time and even with that is already being booked for 4500 a month which covers our expenses and in the future. We think that we could probably charge more for this Airbnb because it’s kind of under market rents right now on Airbnb. We think we can boost this up a bit more, especially during the higher seasons where there’s going to be more demand. I believe winter time it slows down a little bit. So hopefully in the spring in the summer, we can rent it out for more. I would say the only thing is that because this is a 30 plus day rental it’s gonna be a little harder than you know other enemies that book nightly and stuff like that. Usually with nightly I feel like you can probably charge more to but with 30 DAY PLUS usually you want to do a little bit of a discount for them. So we do have like a little monthly discount that we add on to our listings so that it’s more enticing for people to try to book it.
So we believe this Airbnb, fully furnished rental house hack is a great strategy because when we move out of Dallas in the future, we can actually Airbnb that property out as well and do the same thing when we move back to the Bay Area. And we do plan on doing more of these Airbnb when we do move to Texas as well. Yeah, and
we don’t actually have to move back to the Bay Area right away after this dad’s property, we could even move to another Dallas property. And then Airbnb, you know, the the one that we just got, we could keep jumping house hacks, if we really wanted to, this is a great strategy that house hackers used to grow their wealth, because you could do like a 3.5% down payment with an FHA loan for your first property, especially if you don’t have that much capital. And then when you move out, you would actually be able to get even more in cash flow. Because that room that you left, you would be able to rent that one out as well. And then you would make even more in profits. So you just keep doing that. And then you end up having a bunch of properties under your belt, and they’re all cash flowing. So as you guys know, we’re super excited for our move to Dallas. And we think we can really grow our real estate investments and build our businesses out there. So it’s gonna be a lot of exciting stuff in 2022. So make sure you guys stay along and watch our journey. We’re going to keep documenting so you guys can keep learning from it. So we hope you guys enjoy this episode today on our Airbnb house hack and how we’re going to be able to live for free if you guys have any questions below, make sure to comment and let us know. And make sure to smash the like button subscribe. Hit the bell button to be notified of my latest videos. Make sure to subscribe to Sean’s channel where he talks all about real estate investing. And we’ll see you guys in the next one.Transcribed by https://otter.ai
So house hacking is when you have a property and you rent out the spare rooms or other units to other people, collecting the rents and lowering your total cost.
And there are many ways to house hack. So make sure you guys check out my previous video on House hacking where I talk all about it. But basically, you could buy a house and rent room by room which actually, Shawn, you have done right?
Yeah. So when I bought my house in the Bay Area about five, six years ago, at first, I just moved in there and I was all by myself, but it was a pretty big house for just one person. So slowly over time, more my friends were moving from Los Angeles to the Bay Area. And I said, Hey, instead of renting out a whole apartment for yourself, why not just live with me, I’ll rent you a room at pre discounted price because you’re my friend. And eventually we fill up the entire house with other people. But by reaching out each room to each individual person, I end up lowering my cost of living expenses to basically zero
Yeah, so that’s a great way to reduce your expenses and other ways are if you bought like a multifamily property, a duplex triplex or four Plex, and you rent it out by unit and that way you would have a little bit more privacy than by renting out by room. Again, there are many other ways to do so check out my other YouTube video on this. Now in our scenario, the way we’re doing it is we’re actually getting a place in Dallas. But we’re going to Airbnb out our place in the Bay Area to offset the cost of our mortgages. So we’re gonna have two mortgages, but hopefully, it’ll be made up from the Airbnb rental income. So I wanted to break down the numbers here today.
So I purchased my property in the bay or back in 2015. And here’s some numbers that are fixed costs for this property. So every year we spend around $4,500, in property taxes, that’s being around $375 per month, every year also pay $104 for the insurance, so as it being $67 per month. On top of that I have my mortgage and my flood insurance combined together, which costs $1,857 per month. So these a grand total of $2,299 of my P itI. So the principal interest taxes and insurance payments. On top of that we pay around $300 per month in utilities. So that’s like for high speed internet gas, electricity, and sewer slash water, which is a total of $2,589 per month, these numbers are pretty low relative to what you’d get nowadays in the Bay Area. But again, I bought this property quite a while ago,
here’s some of the footage of the Airbnb so you guys can check out what it looks like now room by room. It’s kind of nice right now. So we fix it up a lot. We fixed up the bathroom, we fixed up the fence in the back, we fix up the paints, we clean up the entire place, we moved all the stuff out to our other place. And we just got this totally Airbnb ready for our guests who are staying there right now. And let’s also look at our other expenses when we move to Dallas. So the property we purchased was at $280,000, I kind of want to talk about the process with that property, actually. So I saw this property listed about two months ago, I had been watching the Dallas market for quite a while now. And I saw it come up and then it went pending, like pretty quickly. So I was like kind of sad. But I was thinking, you know, we’re gonna do it later in the year. So we shouldn’t worry too much. We’re gonna look at properties later. But then it came back up while we were driving back from LA actually. And during the road trip, I was like, Hey, this is an interesting property, we actually call the agent and stuff like that you looked at the property, and you actually liked it. And you were like, Okay, let’s just do it. So we call them we found out that the property went pending and then went back on the market because the buyers finances didn’t go through. And we noticed that this property was basically like a fix and flip. So we knew that this property is trying to be flipped right now, we knew that the previous buyer actually put in an offer at $290,000 when the listing price was $277,000. And we knew that the buyers finances didn’t go through. So they are looking for another buyer.
Yeah, so since we really liked this property, it was a very good location, we knew that we could get it for basically $209,000 with no contingencies to accept our offer. So I think in case they just offered 290 K offers
now I thought Yeah, we could offer 290 But then I thought the seller who’s a flipper is probably in the mindset of let’s just accept anything that’s above listing and you know, is a clean offer. And if we’re gonna do no contingencies they’re probably going to accept right so we’re thinking, Okay, what if we just went five above asking, which was $282,000 after the agent walked through the property, so he actually FaceTimed us and showed us the property. We were kind of like, okay, we think about a little more and we also saw the inspection report later and we’re like, you know, what, what if we just did to 80,000 Right. So just a little bit of of asking where we’re like, you know what, this is still like a Good feeling where you put it at 277. But you got a little bit more than what you’re asking for. And it’s a clean offer. So they don’t have to worry too much about it not going through, I felt like if we did that offer it would actually go through. And another thing we decided to do was we put a deadline. So the agent told them that if you don’t give us an answer, by the next day at 5pm, we’re going to withdraw the offer. So that gave them a little bit of pressure to actually take our offer. And what happened also was that they had a bunch of showings, but no one actually offered anything yet. They’re saying, Okay, we’re gonna make an offer, but no one actually did it. So I was thinking they probably are panic, they want it to be sold. So we decided to put in that specific offer and actually went through. So they basically got it sold within like a couple of days, right. So it’s probably a good feeling on there. And it’s good feeling on our end that we got it at a good price. Now let’s break down the numbers for this property. So we’re getting at $280,000. But we’re actually just putting in a 5% down payment. So traditionally, most
lenders recommend you put 20% down for owner occupied property. But for conventional financing, you can go down to 5%. However, you do have to pay mortgage insurance for that lower down payment. For us, we think that holding on to our capital now is better than making those extra payments. So we don’t mind making those extra payments, if it means we only have to put 5% down. So we think about it, we’re buying a property for $280,000, but only putting in 14 grand plus closing costs. So it’s actually pretty beneficial for us. And then like we mentioned before, the Airbnb that we’re doing in the Bay Area will cover all of our payments for both properties. So it’s actually pretty good deal for us. So I guess going back to it down payments mean $14,000 We’re estimating, you know, another $4,000 in total closing costs. That means closing costs that go to the title agent, escrow agents, notaries plus lender fees might also be some prepaid interest here and there prepaid taxes here and there. So you know, we might be coming at pocket a little bit more than 18 grand when it comes down to it. Now another thing is that we are licensed agents here in the Bay Area, most agents across the nation will let you get referral bonuses if you refer them clients. So for example, if I don’t work at a certain market, and I refer a client to someone else, that other agent usually will give us 25% of their final commission towards us for referring the client. In this case, we are referring ourselves, so we’re getting 25% of their commission that they can use towards closing costs. At the end of day, it’s not a huge number, it’s probably gonna be like 1500 bucks. But that’s not that right 100 bucks that goes towards our closing costs.
So that is a tip. If you guys are licensed, you guys can get a referral fee by referring out so make sure you guys do that. Now let’s break down the estimated numbers. This is not like final, but this is kind of what we think it’s going to look like.
So for loan, we have a 30 year fixed mortgage at 3% interest rate.
And we believe that principal and interest will equal about $1,121 property taxes might be around $205. So homeowners insurance is already locked in and we’re going to be paying $87.33 every month for that. And since we’re doing a 5% down payment, we’re going to have mortgage insurance for $166. Now totaling all of that up it’ll be $1,579.33, which is basically an estimate but that’s pretty good price per month. And our property is four bedroom, two bath you guys can see a few pictures are here. Pretty nice. Again, it’s flipped, so we don’t have to worry too much about more repairs. We did check through the inspection report. And there were some things that were messed up. But then we dug further and it sounded like the sellers actually made all the necessary repairs to fix the ones identified in the inspection report. Now totaling the expenses from the Dallas property and the Bay Area property we get about $4,178.33 for the expenses. This doesn’t include utilities for the Dallas property, I have no idea what that’s gonna look like maybe we tack on like $200 a month for that. So that might make it look more like 43 $78.33 so that means our Airbnb needs to start pulling in that much for it to cover the expenses for both of our properties. Now we actually already have a booking right now we have some Tesla interns staying at our Bay Area property right now they’re saying for 51 nights, and they paid $8,796.32 and the total paid to us from that is actually $7,713.44 After Airbnbs cut so on breaking that down monthly, it’s about $4,530 that we would be taking home from that. So that’s good news for us because the property had no reviews at the time and even with that is already being booked for 4500 a month which covers our expenses and in the future. We think that we could probably charge more for this Airbnb because it’s kind of under market rents right now on Airbnb. We think we can boost this up a bit more, especially during the higher seasons where there’s going to be more demand. I believe winter time it slows down a little bit. So hopefully in the spring in the summer, we can rent it out for more. I would say the only thing is that because this is a 30 plus day rental it’s gonna be a little harder than you know other enemies that book nightly and stuff like that. Usually with nightly I feel like you can probably charge more to but with 30 DAY PLUS usually you want to do a little bit of a discount for them. So we do have like a little monthly discount that we add on to our listings so that it’s more enticing for people to try to book it.
So we believe this Airbnb, fully furnished rental house hack is a great strategy because when we move out of Dallas in the future, we can actually Airbnb that property out as well and do the same thing when we move back to the Bay Area. And we do plan on doing more of these Airbnb when we do move to Texas as well. Yeah, and
we don’t actually have to move back to the Bay Area right away after this dad’s property, we could even move to another Dallas property. And then Airbnb, you know, the the one that we just got, we could keep jumping house hacks, if we really wanted to, this is a great strategy that house hackers used to grow their wealth, because you could do like a 3.5% down payment with an FHA loan for your first property, especially if you don’t have that much capital. And then when you move out, you would actually be able to get even more in cash flow. Because that room that you left, you would be able to rent that one out as well. And then you would make even more in profits. So you just keep doing that. And then you end up having a bunch of properties under your belt, and they’re all cash flowing. So as you guys know, we’re super excited for our move to Dallas. And we think we can really grow our real estate investments and build our businesses out there. So it’s gonna be a lot of exciting stuff in 2022. So make sure you guys stay along and watch our journey. We’re going to keep documenting so you guys can keep learning from it. So we hope you guys enjoy this episode today on our Airbnb house hack and how we’re going to be able to live for free if you guys have any questions below, make sure to comment and let us know. And make sure to smash the like button subscribe. Hit the bell button to be notified of my latest videos. Make sure to subscribe to Sean’s channel where he talks all about real estate investing. And we’ll see you guys in the next one.Transcribed by https://otter.ai
