Deal #1 – First House-Hack Using VA Loan SFR with Attached Guest Suite

Overview:

Closed on July 23, 2019

My wife and I purchased this investment as our first home. It is a 3 bed 2 bath SFR with an attached mother-in-law/guest suite that has 1 bed 1 bath. We purchased with my VA loan benefit so we put no money down towards the purchase price. We also negotiated some seller paid closing costs so we only came out of pocket $1,500 total. The mother-in-law suite allows us rentable space and we rent it out on Airbnb, which covers all of our living expenses including electric and utilities, and puts about $200 in our pocket each month. This has been great for us because we can turn the unit ourselves to lower our costs. Plus living for free is awesome! At first, we experimented with renting out a bedroom as well but my wife didn’t like having people in the house with us (which is completely understandable because she is home by herself most of the time as she studies for her doctorate) so now we just rent the separate space. But for those who are single I would definitely recommend renting out a bedroom on Airbnb because with that alone we made around an additional $800/month.

Now because we live for free, and I am in the military and get paid BAH (Basic Allowance for Housing) we get to pocket that amount. This is on top of our roughly $200/month cash flow. Think about that. We get paid to live for FREE. It still blows my mind when I think of it. House-hacking is such an incredibly prudent decision on its own and combining it with the military benefits of being able to put 0% down on a cash flowing rental property, not paying for the mortgage yourself, and getting paid by the government for housing is like the home run of house-hacking. The grand slam would be buying a cash flowing 4-plex with a VA loan and having more units and presumably higher cash flow. This is what I love about real estate, there are so many powerful strategies. And house-hacking while starting out is even more so!

The Numbers:

Purchase: $207,000

Down Payment: 0% VA loan

Repairs: none

Closing Costs: $1,500 (it still blows me away I bought my first property for $1,500, especially when I only had about $2,500 in my bank account)

Cash Flow: Roughly $200/month average (fluctuates because it’s a short term rental)

My Return: Infinite

Lessons Learned

  • How to be an Airbnb host. I say Airbnb because I have used the other platforms and do not like them at all. I’m sure I could optimize by utilizing a channel manager and having my listing on every site, but the suite stays around 95% occupied so we are doing really well with it. We have such high occupancy compared to the market because since we are owner operators and do our own turns, our operating costs are very low. They basically amount to the supplies for the guests that we have to replenish every so often. I have a great book on the Resources page on how to optimize your listings which I have used with great success. I could immediately tell the difference and in the months since implementing the practices in that book it has been all 5-star reviews from guests.
  • How to manage cash flow and handle accounting and expenses for a rental. Only ⅓ of the property counts as a rental property because only ⅓ of the livable space is for the guest suite, but I treated it as if it were its complete own unit and managing it from that perspective has helped me as I have acquired more rentals.
  • Find compromise with your significant other. My wife was very opposed to renting out a space attached to our home. She was worried we would have tenant disputes and they would harass us, making her uncomfortable in her own home. I had her convinced we were going to buy a 4-plex and pull off the “perfect” house-hack. So when I presented the option that she could have an actual house, with an actual yard, and the shared space would be with guests and not tenants she was pretty happy. Having guests instead of tenants is a big difference from what I have seen. Guests respect that the place does not belong to them while tenants may feel entitled to treat the place however they want, so we have benefitted from this extra care. We have been really pleased with the Airbnb model, and have made and saved a lot more from it to put towards our next investment.
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