House Hacking: How to Start with $5,000

Today we will talk about - how to start house hacking - with only $5,000 to put down on a down payment.

And the most cost-efficient way to house hack - with only $5,000 - begins with financing and using an FHA Loan

Now - I'm not a licensed mortgage lender - so what I'm about to tell you about the FHA Loan - is not lending advice. Just speaking from experience and example purposes here - these loans and their terms are subject to change at any time.

So - FHA loans are government-backed mortgages - that allow buyers to purchase homes with a down payment - as low as 3.5%

This means that with just $5,000 - you can get your hands on a property worth up to $143,000 - with our $5,000 we have for a down payment ($5,000 divided by 3.5%).

You might be thinking - that it's impossible to find a property at that price - in this market we're in. Well, at the time of recording this video - according to the Des Moines Area Association of Realtors MLS - there are currently 135 properties - available under $143,000.

Just single family and condos/townhomes - I didn't dig into multi-family here either.

So it is possible to find something in this range in central iowa!

So we found our property, and Let's say you get it for $140,000

With the FHA loan - we get a 6.5% interest rate on a 30-year mortgage.

We'll estimate annual property taxes of $2,000, home insurance costs of $500 per year, and private mortgage insurance (PMI) payments of $65 per month until you reach 20% equity.

With these numbers, your total monthly payment on the property would be approximately $1,200.

Now, let's assume it's a 2-bedroom, 2-bathroom property, and you're able to rent it out for $1,600 per month. 

After setting aside 10% for vacancy and 10% for maintenance and repairs - your monthly payment after moving out is around $1,450. 

This means you'll be cash flowing $150 per month after covering all expenses, including future costs for maintenance and potential vacancy.

After just under 3 years of renting the property, you will have recouped your entire initial investment of $5,000. just from the cash flow. 

This timeline could be even shorter if rents increase or if you can find ways to reduce expenses, such as refinancing to a lower interest rate if rates drop and capturing the built-up equity gained

This house hack example - just from $5,000 down - if you decided to sell after 10 years, after fees, would net you just over $50,000. This includes principal paydown, assuming a 2.5% appreciation rate per year on average, and selling costs of around 8% of the price.

So $50,000 received from your $5,000! You just 10x'd your investment.

wait another 10 years, that $50,000 almost triples - to $135,000 in proceeds!

So you can kind of see now the snowball effect - and how you can put that $5,000 to work.

Try getting those returns in the stock market

(look at screen)

For fun I just ran the numbers quick - on what $5,000 would turn into at a 10% return after 10 years,

and your $5,000 just turned into a little under $13,000. So it more than doubled, but it didn't give us a 10x return

If you wanted your $5,000 in stocks to turn into $50,000 after 10 years, you'd need to get almost 26% per year returns... Hope you're a good stock picker

ANYWAYS

House hacking is more than just a financial strategy; it's a lifestyle that allows you to grow your wealth while living in your investment property.

By renting out part of your home, or your entire home - you can SERIOUSLY reduce, or eliminate, your living costs, making homeownership more accessible and financially rewarding.

Aside from the financial reward - keep in mind, you're doing a great service for housing as well.

You are now taking these properties - whether they're $140,000 or $340,000 - and providing housing for people who either can't buy a home - don't want to - or just need a place to live. 

There is never a shortage of the need for housing, and if you house hack properly - you and your tenants are both benefiting from it.