Big Town Real Estate

Big Town Real Estate
House hacking in Los Angeles

House Hacking Real Estate Strategy in Los Angeles

House hacking is basically defined as buying a residential property, usually as the buyers residence- and figuring out a creative way to generate revenue from it (while still living in it).  Rocketmortgage defines house hacking as ‘finding ways to generate income from your home.” Forbes also calls it “a strategy that involves renting portions of your primary residence to generate income to offset the cost of your mortgage”. 

Everyone should start out as a house hacker. I started out as a house hacker, and many investors, myself included, will simply not buy a house if they can’t house hack it in some way. Why? Because in addition to being profitable, house hacking is creative and fun. Three Examples of personal house hack experiences:

TRIPLEX, all units occupied. Moved into one unit, needed to evict a tenant to do it, and had to navigate tricky LA Rent Control. Lived “free” in the unit for a couple of years because mortgage was covered by the other units. Rehabbed unit, and unit now rents out for 4x what it did when the property was purchased. Simple.

SINGLE FAMILY HOME, with FINISHED BASEMENT, which was unpermitted space, which cannot be rented technically. This space was not included in the purchase price or the appraisal,  it was ignored.  Plans were drawn up to turn it into an official ADU and minimal changes made to get space into code compliance to become ADU, and space is now rented. Single family converted to duplex essentially for minimal money.

SINGLE FAMILY HOME, with DETACHED GARAGE. Garage was converted to living quarters, and fence put between garage and home. Garage unit rents out for $2000/mo, and gets 10-20 applicants in the first 2 days its listed at that price. This garage unit is one of the most sought after rentals I have actually ever seen. (It is nicely wooded, with laundry, nice stonework etc. But still- it’s a garage!)

There are many different ways to house hack, and house hacks are creative and fun endeavors. Here at Bigtown, we are firm and lifelong devotees to the house-hack strategy, and assist our clients in identifying, procuring, and even doing the work on, house-hack properties. House hacking is hands down, one of the best ways for normal people to build wealth, and we encourage everyone to do it.


Examples of House Hacks

GUEST HOUSES/BACKYARD STUDIO UNITS: These are the easiest house-hacks ever. Even if they are not outfitted with kitchens, if they have plumbing, a kitchen can be added (We have added small kitchens for under $7500.00), and voila! Instead of a “play room”, you now have a “rental unit”. Don’t get me wrong, play rooms are great- but see above. $2000 a month is also great. Guest houses can sometimes be very nice, and they can even be airbnb’ed or short term rentals,  You also have the option to renting to traveling professionals for 30 days at a time with a  mid-term rental strategy.  You could get literally thousands a month, renting out a nice guest house- and still have it be available for when you have people who are actually coming to visit you. 

UNPERMITTED UNITS/ATTICS/BASEMENTS – ESPECIALLY IF FINISHED OUT:  Similar to guest houses or backyard units, oftentimes large old houses will be split into units, sometimes in a shabby/ad-hoc way— which can be separately rented. Most of these rentals are illegal to rent to long term tenants- but many timesthese units can be short term rented.

Also, these types of units can also be permitted- if they are done well, then someone can be hired to draw and expedite city plans, make some changes, and get the units approved to become rentals. And once this is done, you have now added a real rental unit to your property, for the price of getting some drawings done, making a few changes to the space (probably), and pushing it all through the city planning department. (Can cost under $15,000.00 to get an entire unit drawn, changes made, inspection passed, and unit approved – if stars align).

Here at Bigtown, we know contractors and expeditors, as well ourselves have experience in these types of things, so that we can provide our clients good guidance on what is and is not a good candidate for a house hack.

BIG DETACHED GARAGES, BIG LOTS: Saying “Why don’t you turn the garage into an ADU” has rapidly become a real estate cliche- and almost every listing says “ADU Potential.”  “Why don’t you add an ADU in the big yard” is equally cliche. ADU’s are expensive. $80-100,000.00 for garage conversions sometimes, and $125,000.00 – $150,000.00 for a ground up build. BUT- did you know that you can BORROW THE MONEY to build the ADU? Did you know you can roll that into your main purchase money loan?

203(k) loan is a loan product, wherein the buyer applies to the bank or lender, with plans to do a rehab, or other substantial work to a property– like building an ADU – and has the lender lend the money to not only buy the house, but also to do the construction project- all as part of the purchase of the property. 

The process is fairly simple. Buyer identifies property with ADU potential, gets it under contract, and then has a contractor draw basic plans, and give a bid to the lender for the ADU build.  If approved, the bank will fund not only the purchase of the property, but will then pay the contractor with the lender’s money- to build the ADU. So the end result is, buyer buys a house, and within 90 days or so, has a brand new fully operational rental unit, paid for by the lender. Of course, the monthly mortgage payment will be more because the ADU cost is rolled into it. Perhaps $600 or even $800 a month more. But, a nice ADU may rent for $2500.00 or even $3000.00 or more, depending on its size. The house will then be house hacked.

BIG HOUSES WITH EXTRA SPACE THAT CAN BE PARTITIONED/SEPARATE ENTRANCES: This one is may not be for the faint of heart, but many people do it. If a house has a lot of extra space- especially if there is a separate entrance – extra rooms can fairly easily be rented out to traveling professionals. There are entire websites dedicated to such rentals. Furnishedfinder.com is one of many. Furnished rooms also rent out on mainstream platforms like Airbnb and VRBO quite well. First time homebuyers, especially young ones, often utilize this strategy.

House hacking strategies can look any number of different ways, and your imagination truly is the limit. As an example, consider the following:

Best House Hacking Strategies

Buyer buys a residential house on a main street. House has studio unit in back. Buyer pays what seems like too much, and rent would never cover the mortgage. House isn’t a great short term rental due to being on main street, and due to local regulations.

Buyer is a psychologist. Buyer fixes up house, turns living room into a lobby, and all the rooms into individually outfitted therapy rooms, including the back unit, 4 in total. Buyer rents out the rooms BY THE DAY to therapists. The charge is up to $300-500 PER DAY PER ROOM. Even at $300 per day, if buyer even books each room for 10 days per month- he is making $12,000.00 per month gross, on the property – and he does not even have to deal with long term rental tenants, the wear and tear of pets and families, etc. (Long term rental value would be $4000/month at most; mortgage is at least $6000.00 – this buyer turned what could have been a loser, into a home-run, grand-slam winner)

Such is house-hacking. A whole book can be written about it (and has been) but the crux of the house hack is- use creative ideas and strategies to unlock value potential of property- potential that other people don’t see (and therefore, which you don’t pay for).

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