Are you wondering how you can possibly afford a home here in the very pricey San Francisco Bay Area? Saving enough for a down payment on a million-dollar home could take a very, very long time.
That’s why house hacking can be a great solution to affording a home despite the high prices here in the Bay Area. And in fact, it’s something that we on the Joe Dickerson Group team do ourselves!
House hacking is when you buy a multi-unit property like a duplex, live in one unit, and rent out the other(s). In doing so, you get to live in the property, while also having your tenants help pay down your mortgage.
Meet Jack and Liz
Please note: While the names in this story have been fictionalized to protect the identity of our clients, the story and numbers are very much accurate.
Let’s dive into the story of one of the many clients we’ve helped to start house hacking. We’ll call these clients Jack and Liz.
A couple of years ago, Jack and Liz were looking to buy a home in Oakland for their growing family. Liz was working for a tech company in San Francisco, and Jack stayed home to take care of their two young kids.
Because of the high cost of living here in the Bay Area, they had some modest savings, but certainly not enough to put down $200,000 or more on a reasonably sized home in Oakland.
That’s why Jack and Liz started looking for alternative options. Once they started thinking outside the box, our team helped them realize that house hacking, coupled with an FHA (Federal Housing Administration) loan, could be a great fit for their long-term goals.
The Property
After looking at many multifamily properties in Oakland, Jack and Liz found a duplex in the Dimond District that was a great fit for what they were looking for.
- Property type
- Duplex
- Unit 1
- 2 BD / 1 BA (owner unit)
- Unit 2
- 2 BD / 1 BA (rents for $1750 per month)
- Asking price
- $785,000
- Purchase price
- $805,000
- Loan type
- FHA loan with 3.5% down payment
Even though the home was a great fit for their real estate needs and wealth goals, there were still a few things that needed work. For one, both units were fully occupied by tenants at the time of purchase, meaning that they needed to navigate an owner move-in eviction for one of the units, so that they could move into the home themselves.
Further, each unit had only 2 bedrooms and 1 bathroom, which was a tight squeeze for their family of four. However, they were willing to put in some sweat equity to create an extra bedroom and bathrooms, with the eventual goal of turning their unit into a 3-bedroom / 3-bathroom unit.
House Hacking Success Story
Because Jack and Liz were able to see the potential in the duplex, they were not only able to purchase the home at a great price, but they’ve also achieved massive success in the time since they’ve purchased it.
After the tenants in one of the units moved out, Jack and Liz were able to move their family in and begin work on the renovations. They took care of deferred maintenance issues and started to improve the property.
The second unit has been rented out to long-term tenants, who are contributing $1750 every month to help pay down Jack and Liz’s mortgage and expenses.
In just under a year, given the work that Jack and Liz put in and the improvements they made, the property was appraised for $1.1 million, nearly $300,000 above their purchase price.
That means that in just one year, they were able to create hundreds of thousands of dollars in value (more than they might have earned through a full-time salary!), which helped them grow their overall net worth and build wealth for their family.
Are You Considering House Hacking?
If you’re in a similar boat as Jack and Liz were, house hacking might be a good fit for you. House hacking might be a bit more hassle than buying a single family home (you need to share your space and learn to be a landlord), but it can be well worth it to grow your long-term wealth for your family.
We’ve helped many people to successfully house hack homes here in the Bay Area. We’ve worked out a unique system and process that works, and we’d love to share it with you.
If you think house hacking might be a good fit for you, start by scheduling a call with us, or check out one of our upcoming house hacking classes.
