DO NOT HOUSE HACK!!! If you want to make Money

All right, I had a meeting that ran a little bit late, so we're skipping the intro video today. We're going straight live. Uh, really excited to see everyone here today for today's topic, because every week when we go live, we have a specific topic, and then I'll answer questions in the chat and all the stuff that we always do. Uh, but today's topic is something that's really important to me because I hear the strategy all the time. In fact, a lot of my mentors actually still teach this as a model. It's a model that I use to build my portfolio as my original strategy. Um, and there's some major problems with it that I want to dispel, and I think this is one of the most valuable things that can possibly pass. So if you are looking to do a house hack at any point, you heard this strategy— BiggerPockets has made it an infamous strategy. Before it was just called, you know, living. But the house hack strategy, there's some, like, two huge problems with it, and it held me back for years. And so I'm going to share my thoughts on this in a way that I haven't done on this channel. So I hope this is insanely valuable. I believe it will be. I'm gonna dive directly in. So with the house hack model, if you're unfamiliar, super fast, you rent out a multifamily building. Usually for most people, it's like a duplex up to a fourplex. It's usually residential multifamily, right? You have a unit that's vacant, you move in. Now you have 2, 3 tenants who are paying your mortgage. The goal is to live for free. It's a great way to save, and there's a lot of advantages to this strategy. There's a reason that I wouldn't recommend doing it, which I'm gonna get to in just a second. Second, but that's the overall strategy. Now, when I started, I did the small version of this. I bought a 2-bed, 2-bath condo and I got a roommate. So they got their own bedroom, bathroom. They paid about 65% of the mortgage, which means for less than half the cost, I was able to own a place. And while I lived there, I did what's called a live and flip, also very popular in BiggerPockets. Um, I redid the flooring, I redid the lights, I redid the cabinets. I and, you know, got all the drill bits and redid all the handles and painted the trim. I made the place a lot nicer while I lived there, and I did sweat equity. You make the place nicer. And when I went and bought a house, I moved a tenant into that building and eventually got an offer for it. That was enough where I was like, you know what, this is a great deal, I'm gonna do it. During that period, I discovered a better method than the house hack, and I'm going to tell you why there's, there's a better way than the better way, but I I— the story is important here. I realized I don't like having roommates and I don't like sharing walls with my tenants. You also don't have to do that to do the exact same strategy. I bought a duplex in Bremerton, Washington. It's about an hour away. The cash flow on that duplex was about $1,000 a month. My mortgage was $2,000 a month. So what does a logical person do? I found another duplex, other side of the state, Central Washington. About $1,000 a month cash flow. That one was a little bit of a value add. I did a lot of the work myself. I put in the sweat equity. I got 2 duplexes that cash flowed a total of $2,000 a month. I bought a house, tiny little house in Renton, Washington, with a mortgage of $2,000 a month. I didn't have to house hack. I didn't share any walls with anyone. My tenants don't know who I am. I had it all managed, uh, in third party. The house hack takes a lot of time. You do a lot of work. It's trading time for money, very much linearly, one-to-one. You do not need to live in the building that is getting you the income. I have found people move around, they move their family, is really inconvenient. I see them do a lot of work. Your return on time absolutely sucks in the house hack. Now, is it better than doing nothing? Absolutely. Like, go out there. If you're not going to do anything else, buy a little building and bit, save some money. Saving money is good. It slows you down though, because you're looking for one strategy in one very specific niche, niche that a lot of other people are too. So you often get priced out. If it's a great place to live, other people want to live in the same building too. The house hack is a well-known strategy, so you have tons of competition. It's a very, very difficult way to scale a portfolio. So what most house hackers end up with is I lived in a duplex. Next year I got another duplex, and next year I got another duplex. And we took a year off from doing it. We loved the place we lived, and then 2 years later we did a fourplex. And then we— you end up with this small portfolio that involves a lot of work and a lot of management, and your side hustle becomes your side job, becomes a little bit more than a hustle. And you're putting a lot of sweat equity in, trading a lot of time for a little bit of cash flow. When you hear influencers say like, hey, real estate deals are a terrible way to make cash flow, they're talking about the single family and small multifamily family deals. Better model. 8 years into this adventure, I end up going to, uh, Moses Lake, Washington, and we find a 38-unit building, and it's for $2 million when most buildings in the area are appraising for $100,000 a door. There were some operational problems. It was a project. We took on this project. We succeeded on the project. It appraised for $4.2 million. I pulled about $1 million out of it, paid off the partners that we had raised $300,000 to close, which is insanely little money for that amount of building. And, uh, pocketed the rest of the money and the cash flow. What I learned: 38 makes more than a duplex. There are no duplexes that can make as much top line as a 38-plex, which means there's— you can't have bottom line without top line. You need both. Of course, cash flow is your bottom line income, but you need more top line to get to more bottom line. I did a 38-plex, then I did a 12-plex, then I did a duplex. And here's what I found: it was easier to close the deals that were a little bit bigger because they make a little bit more money, and making more money makes them easier to get lending for. So now you have more lending options, you have more access to capital, more people are excited to own it with you. So you have more partnership opportunities. Overall, the business is easier and a magical thing happens. In residential real estate, it's designed for people to live in them. That's why it's called residential. If you're buying residential real estate, it's not really designed to be a business. It's just not. Now a fourplex, like, yeah, it's designed to be a rental, but it's not designed to make a lot of money. And it's not designed to scale. In multifamily, all of a sudden you have more access to capital. The deals make more money, and they're expected to make more money. They trade off of what they actually make, not what other people are willing to pay for them necessarily. So when you're structuring this, you switch to a 5-unit, you go up to a 38-unit. Cody Davis did a house hack on our resort. We bought an 18-cabin resort on the water— kayaks, boats, staff, whole nine yards. About 20 acres of real estate. Beautiful, beautiful. Frisbee golf course on it now. Cody house hacked the resort. He lived in the upper unit, uh, it wasn't even one of the cabins. He just— we— there was in the above the main building, there's this manager suite. So Cody got to live in a beautiful forest in Washington State, uh, for 6 months doing a house hack. That's a cool house hack. Live in an amazing remote, uh, commercial operation, take take a little time to kayak and reset. Super cool opportunity. It also happens to today make a lot of money. That's a business, uh, this month we'll do like $110,000, $115,000. August is our biggest month of the year. It'll probably do about $125,000 of top line income on like $60,000 of expenses. Like we'll have a $60,000 of cash flow. One building. Your duplex will not net you $60,000 of cash flow. So all I'm saying, if you're going to do the real estate thing, just make it a business. The strategy problem is same with the BRRRR method. I still get people today who are stuck on the BRRRR method. Is it a good strategy? Yeah, it should be in your arsenal. It's cool. Love BRRRRs, do a ton of them. If you're only looking for BRRRRs, you're missing out on other deals that also make a ton of money. Build your business in a way that makes sense. The house hack problem is that people get addicted to house hacking and they get married to this idea that I have decided that I'm going to start with a house hack. If that is you, I'll tell you right now, it's the wrong mindset. Your mindset should be, I'm going to go find a multifamily deal of any size. I'm going to go find a deal and then I'm going to find a way to close the deal that makes money. You're going to find there's a lot more opportunity for real estate that makes money and also makes sense than I'm going to find a deal with a specific strategy. Don't choose your strategy before you have your opportunity. You pigeonhole yourself into a really limited way of thinking and a really fine— you make your buy box so small, only a few properties fit into it, and you miss out on all these bigger opportunities. I did it. It's why I was buying duplexes. I buy 30. Today I have 650 rentals. And a result— and a resort and a PM company and an education business that I absolutely love getting the opportunity to coach. And I have all of this, uh, not because I'm amazing, uh, just because I changed what a buy box looks like. It's a much more specific entry-level multifamily. I care much less about the size. I care much more about the location. Excellent area, excellent deal, day one cash flow. Multifamily, not Class A, not Class F. There's a lot of deals in there. How am I going to close them? I don't choose the strategy before I have the deal. I say this every video: deal, debt, equity, in that order. You have an opportunity, you find a debt product that makes sense for it, you close it. A lot of people get sold in this house hacking thing on, oh well, I can get really low down debt so I can take a very little amount of money and I can buy a building. Which is true. You'll just buy really little buildings really slowly. My hypothesis, or my, my operating theory that I believe I have proven, if you just look for the multifamily deals, you might find a house hack by accident. And it's like, hey, this is a great deal, I want to move into this, I have a great debt product available. I found a deal, I lined up a debt product which happened to require me to move into it, I don't need any outside equity, I figured out the whole thing. Done. Cool. You did a deal. In the meantime, you might accidentally find, oh wait, there's a 15-unit that makes more than a mortgage on a house. And I can just buy this one 15-unit and this 15-unit can pay for me to live in a beautiful area exactly where I want, um, without having to have all the neighbors or do the whole house hacking thing. Do that. Don't get married to the strategy or the debt product or the equity stack because you saw some strategy on BiggerPockets or you read something in some book. Find the deal and negotiate a deal that makes money and makes sense for you. And out of that, you'll find there's a ton of opportunities. It's the difference between having a little real estate and a lot. Trust me, I have done this myself. I went from the 9 to 5 and the duplexes. I did the broker thing, I did the property manager thing. I've done most of the things that you can do in the real estate space. I've been an employee, I've been a marketer, I've been a property manager, I've been an owner of small things, I've been a house hacker, I've been a house flipper. I've done all of it. You can start at the end. If your goal is to scale and own a business that makes money, just look for bigger deals and look consistently. Again, deal, then debt, then equity. Deal, then debt, then equity. Deal, then debt, then equity. That's the, that's the model. Now, if you're watching here on YouTube specifically, in the description, I actually put a link to this. So if you want to see more on deal, debt, equity and the model that I used to buy a bunch, I have a webinar tonight. It's totally free. Spots are limited and it looks like we're going to have a lot of attendance tonight. So I'm looking forward to it. Uh, but you can click the link below, um, and register for that. That's at the top of the hour. Uh, and I'm just going to be going over like 90 minutes of the entire strategy, uh, which I'm not going to do here live. Um, but I will do live this evening. So you're invited to that. Again, register totally free. I love talking about this. I'm just not gonna— yeah, today's about house hacking. Um, the house hacking model itself is not bad, but it should be one tool in a much, much, much, much, much larger tool belt. Don't pigeonhole yourself in that one strategy. You're gonna slow yourself down a ton. I certainly did it. Huge mistake. So again, if you guys want the entire business model package for you, uh, live, I'll be going live in like, what was that? 30-ish minutes, about half an hour. Um, you guys can still register. There should still be some spots open. Uh, it'll be pretty heavily attended cuz it's totally free. Uh, but I love doing it. There's no gotcha at the end. There's no like, now you must pay all this to learn all of this. I'm just gonna share the whole model with you. I'll invite you to like a super inexpensive thing if you would like to. And if you don't, the value in the 90 minutes is going to blow your mind. Like the, the actual model. I'm going to show you, uh, 4 things. I'm going to show you how to actually structure a deal. I'm going to show you how we are finding and putting together the deals. I'm going to show you how to correctly use creative finance so you're not asking people to create a finance. It's a natural process where you're solving a problem for the seller. And then I'm going to show you how to structure capital so that you can raise outside money. That's interesting to you. Click the link below. If not, um, that's fine too. You can do whatever method you want. That's the fun thing about this video is, uh, don't get married to one strategy. I'm gonna show you a bunch on that. Um, and happy to do so. Uh, with that, that's what I have for live. I don't have any questions here in the chat. So since we have no chat questions, I will call it a day. I appreciate you guys all a bunch. We're live here every Wednesday. Uh, if you do have questions, bring your questions here. I'm happy to answer 'em and I'll see you on the next episode.