Does the thought of making money in real estate seem out of reach? That’s what many people think when the topic comes up. There’s an easier way to build wealth through the housing market using a trick known as house hacking. As my guest this week explains, with a little bit of money and lots of creativity, just about anyone can do it. Andrew Kerr bought his first home at 20 years old. Now, in his 30s, he’s a seasoned real estate investor and serial house hacker. He uses house hacking and real estate investing to build stealth wealth and financial security. Andrews blog, FI to REI focuses on educating people on travel rewards, real estate investing, house hacking and personal finance tools. His podcast, The House Hacking Podcast, is dedicated exclusively to helping individuals learn how to house hack.

Welcome to the Maple Money Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. Do you prefer to invest in companies that are socially responsible? If so, our sponsor, Wealthsimple, will help you build a portfolio that focuses on low-carbon, clean-tech, human rights and the environment. To get start with socially responsible investing, head over to maplemoney.com/wealthsimple today. Now, let’s chat with Andrew…

Tom: Hi Andrew, welcome to the Maple Money Show.

Andrew: Yeah, thanks for having me on. I really appreciate it.

Tom: I was talking to you before we booked this episode and one of the things that surprised me was there’s a lot more to house hacking than I knew about. On episode 94, Court, from Modern FImily came on and one of the things she did well was the version of house hacking where you rent part of your house out while you’re staying in it. That was one of the big secrets to her success. That’s about the limit of my knowledge in house hacking. In my own personal life, real estate, pretty much meant you bought a townhouse and once you’ve outgrown that you bought a regular house. That was kind of it. It was pretty non exciting—just buying a place and that’s it. What I’d like to have you go through with us here is… First of all, the big question is, what is house hacking?

Andrew: House hacking is just trying to work at your housing choice slightly differently. It helps benefit you financially. Or, at the very least, reduce those housing costs. I know Canada is slightly different than the U.S. But in the U.S. most folks spend about 33 percent of their income on housing. If you’re trying to get ahead financially but spending a third of your budget on housing—if you can reduce that and cut it in half, it can make a huge impact on your life. That’s really what house hacking is. Let me make a slightly different housing choice for a period of time to help benefit me financially.

Tom: In Canada— I don’t have the stats in front of me but it wouldn’t surprise me if we spend more because we never had the major price drops in 2008, 2009. Our housing prices just weren’t based on the same issues that the U.S. had. So we never really got a decent correction. Is a little bit of a dip. We do have a lot of expensive housing here in Canada. When I look at some of the prices down in the U.S., it makes me want to move, honestly. Obviously, it depends on the state, but there are some states I could move to and be mortgage-free just by moving, which is certainly another form of hacking, I guess. But here I’d say that something like this would benefit us even more just because of the housing prices.

Andrew: Yeah, that’s where the traditional model of house hacking was. Either you go buy a multi-family property or a big house and rent out the rooms. And what happened was, most folks did house hacking to get ahead and get started on real estate investing. And while I had a lot of experience with more than 18 years in real estate investing, the reason I started doing house hacking as well as the podcast, was to really to spread it out because a of folks in the personal finance space are interested in financial independence. And what I’m trying to sort of preach is, you don’t have to be a real estate investor. You don’t have to want to be a real estate investor to do a house hack. You could do a house hack for three, five, maybe 10 years to pay down all that student debt or pay off that credit card, consumer loans or potentially pay off your mortgage. We had a guest on our show in episode 20 who was actually from Canada. She house hacked for about four or five years just to pay down her mortgage. Then she went and bought her new dream home and had that mortgage-free. So it’s a great way to just supercharge your finances. And, if you want, dive into real estate investing. You’ve got this great base and knowledge so you can go from there. You can house hack for a couple of years and use it to help get ahead financially.

Tom: So what is the big difference between house hacking and real estate investing? Is it literally that you’re living in the house at the same time?

Andrew: The big idea is, it is a form of real estate investing. But the trick for house hacking is, you’re buying the property and essentially living in it versus just buying an investment property like one across town you want to rent out. You’re just buying it to generate income. But with house hacking the idea is to buy it, live in it and use it to reduce my housing costs. Then it could end up being an investment being an investment property or you could just sell it or turn it back into a traditional home.

Tom: Can you kind of break down these six ways that you’ve laid out—the six different types of house hacking so people can kind of see what ideas there are?

Andrew: The first is simple; room rental. You buy a four or five-bedroom house. You live in one room and rent out the other ones. This is a great style for young professional or someone out of college who is used to having roommates. You just rent out those extra rooms. That second style is this sort of income suite. This is really popular for folks that don’t mind having someone living under the same roof but want some sort of separation and it’s not a full multi-family property. As an example, a lot of folks (especially in Canada, the Midwest, and the northern part of the US) have got walk-out basements in their homes. What they’ll do is convert that walk-out basement into an apartment. Now the tenant can walk down the side of the property and go in the back door and they never see him. All of a sudden, that income suite has helped cut that mortgage cost by a quarter and half or potentially all the way. That’s the second style. The third is an ADU or accessory dwelling unit. This is where you’ve got a second building on your property. Maybe it’s a pool house or guest house but what is really popular is where people have a detached garage building. They’ve got their cars parked in it but maybe it’s two stories. What they can do is add an apartment above the garage. In the U.S., we call that an accessory dwelling unit. And the idea is, again, it’s someone that’s there on the property, but it’s not that you’re fully sharing rooms. One of my good friends who I actually interviewed on my show had this really cool experience. She and her husband bought a big home with the garage that they put an apartment above. And over this eight-year period, they went from being a young couple in love to getting engaged, to getting married and having their first kid. This style of house hacking worked out perfectly for them. The fourth style is the more traditional house hack with a small multi-family home where you’re buying a duplex, a tri-plex or a four unit. You live in one unit and rent out the other units. Those help offset the cost of living there. What a lot of folks do too is, maybe they live in a duplex. They’ve got a two-bedroom, one bathroom on one side and two-bedroom, one bathroom on the other side. They’ll combine those two styles where they’ll say, “Hey, I’m going to rent the other side but also rent a room,” which will really sort of supercharge the gross rents. Then there is the live-in flip. A lot of people are familiar with flipping homes but the idea here is that you live in it for a year or two, fix it up while you’re living in it and then you sell it for a big profit and move on to your next home. And then the last way is this idea of a work-provided house hacking where you specifically make a career choice where your career helps offset your housing costs or gives you a housing allowance. There are a lot of jobs out there like the military. A lot of militaries around the world give folks housing and barracks. They give them a housing allowance. We interviewed several folks that went to go teach abroad and they were given $18,000 to $20,000 a year housing allowance. And what they could do is say, “Okay, I’ve got $20,000 for housing so I’m going to go and find a place for $15,000 and pocket the difference. So that’s for the last option; to specifically make a career choice where they offer housing.

Tom: There are a couple of those I’d like to dive into for a bit. The income suite you mentioned, seems to be a really big thing here in Canada on Vancouver Island. There’s Victoria up to Nanaimo. I’ve looked at real estate there whenever I get tired of the weather here. I think about living out there on the coast. It seems so common that you can rarely find a five-bedroom house that doesn’t actually have two of those rooms being separately locked out suites. Now, it’s not always the basement. Sometimes these places are just built for it. Someone I know that lives there and told me that a lot of this is being done for university students because they come in for school and that’s all they’re doing there. But just as a Canadian example, I do see this a lot on the island. If someone looks on any of the real estate sites and searches a five-bedroom, you’ll likely find out that the two of the rooms are probably these separate suites in the house.

Andrew: Yeah, if you just sort of make this choice where you want to get ahead financially, whether it’s to pay off debt or to get to high FI (financial independence) and retire 20 years earlier than the typical retirement age, all you have to do is say, “Great, I know I want to do this so let me look at the different styles of house hacking and find one or two that will work best for me.” Then you can start to go out and look for those houses. Like you were saying, maybe it’s a bigger home where there’s a basement that’s unfinished. If you finish that basement you can create a two-bedroom apartment down there. Or you could find a place near a university so you can rent out students. Something that’s really big here in the U.S. is renting to traveling nurses. This is a property near a hospital where nurses will come in on a three-month contract. And they get a big housing allowance so they can come and rent that out. My third house hack was a big, three-unit property. We had a guest house. We used to rent our guest house to airbnb for short-term tenants. But we have a travel person there right now. She’s been in there about two months and will stay another two months. And we actually have a travel nurse that has it booked out for after she leaves. These are great ways to look at renting spaces. Maybe you want to run an airbnb where they come for a night or two or maybe you want to rent out to some folks who might stay three to six months like a travel nurse. Corporate housing is really big if you want to furnish it. And then the last one, the traditional one is where you have a tenant stay nine months or longer. That could be your working professional, lower-income folks to renting to college students.

Tom: This brings me to the other thing I wanted to dive into with your situation. You mentioned you just did your third flip. Are you that “live-in” flip format? Is that what you’re doing? Or are you going from one house to the next?

Andrew: I actually did my first house hack—I bought my first property at the age of 20 and I just turned 38 now. So I’ve been in real estate for quite a while. I did my second house hack around 2009, 2010. I eventually stopped house hacking and just started buying investment properties. But then I met a woman and we started dating. We got serious. When we moved to New Orleans together, I said, “Look, why don’t we rent a place, get the lay of the land. Why don’t you take some of your savings and I’ll take some of my savings and let’s do a house hack. No real estate’s a sure thing but let me just sort of paint this picture. We can get a good location. How much better life would be if we weren’t spending $1,000, $1,500, $2,000 a month on housing?” Previously, I had a pretty cheap place. She was spending about $1,000 a month. When we moved to New Orleans, we rented a place that was around $1,400 or $1,500 US a month at the time. And we loved to travel source. What I sold here on was, “What would happen if we had this extra $1,500 a month? That’s $20,000 a year. That’s two pretty awesome international trips.” And then all the sudden that light started clicking for her. And what I found was this giant, old, corner store, building that we converted into three high-end apartments. It had a detached garage building that we turned into a small, 500 square foot guesthouse. And she loved it because when her mom came down to visit us, she could stay in the guest house. Her mother was on the property but not in the same space as us. And then my parents and my sister came down. We had friends come and visit. It was this perfect location. We had a grocery store with parking five blocks one way. We could walk down the other way where we had a live music venue. The streetcar was two blocks away as well as any type of restaurant, coffee shop you wanted. So we essentially had the best location, in a two-bedroom, one-bathroom apartment with a beautiful kitchen and a giant, 60-gallon, soaker tub. And she was happy. She had what she wanted, hardwood floors, marble tile in the bathroom. And with that property and renting out the other units, not only did we have zero housing costs, we typically pocketed $8,000 to $10,000 a year. That helped us as a couple, newly engaged, then married—it really supercharged our joint finances together. Now, we just recently finished our fourth house hack since then. But that third house we were in was sort a multi-family, guest house of a small by family guest house, ADU combination. We bought it, put a bunch of work into it and really increased the value on it. This combination of live-in flip, house hack just helped us get ahead financially.

Tom: With your model, is it fair to say you’re making money from renting, but you’re also making improvements and benefiting on the flipside as well?

Andrew: Yeah. It depends on your skillset. I’ve done tons of renovations. I’ve owned a bunch of property before. I bought a really, really bad property because I wanted to add value. That’s the kind that will make the most money in equity. We bought it for $27,000 or $280,000. Somewhere in there. It had broken sewer lines, old knob and tube wiring. We couldn’t get insurance on the building because of the knobbing, broken sewer lines in multiple places, a bad roof. We gutted it all the way down to the studs. We probably spent somewhere around $50,000 on top of what we bought it for. And we didn’t pay for all those renovations out of our pocket. We had to finance to help cover a lot of that. But, that’s a huge undertaking for a lot of folks that don’t have any experience. I was comfortable in that though. We added tens of thousands of dollars of equity as soon as we were done. Then we had some great cash-flow. But really, it’s a great way to sort of increase your net worth; buy a property that needs some work and do that work as well. A part of what I sold my wife on was when we finished this third house hack, this gave us cash-flow to go do other things and actually move out. It’s now also full rental property that’s producing about $1,400 a month for us. And that’s huge for a lot of folks. An extra $1,000 a month for folks makes a huge difference.

Tom: Did you say you are doing the renovations or is it a mix of both?

Andrew: No, no, not anymore. When I first started out, I didn’t have money so what do you do? So I’d hang cabinets, install windows. On that project, because it was so big and I was doing a lot of other travel, we hired a general contractor. We had to hire an architect to get the plans approved by the city. So they did most of the work. I went in and did a little bit of fine stuff. I still like to do a little bit of detail work; stuff that is very expensive to have, like an experienced carpenter come in to do some hardwood and the like. We’ll do that kind of stuff every now and then. But on that property, I didn’t do hardly any work at all.

Tom: Well, that’s good to hear because I’m not a very handy guy. My concern was, can this actually be profitable if you’re paying someone to do these renovations?

Andrew: Well, it’s crazy. We interviewed this woman, Amanda, and her husband who did a house in Seattle. They did all the renovations themselves right out the gate on their very first property. The stuff she was doing I would have been very nervous about doing on my own. But she had this great attitude where she said, “Look, we can figure this out. There’s so much stuff on YouTube. We can go watch it. And if it’s not perfect, that’s fine. If we can get it 90 percent perfect most people don’t realize the trim might be off by one degree.” They were not building this super, high-end custom home. They were building an average home that folks were living in. There is a really cool opportunity with YouTube and everything online where you can go and learn how to do a lot of stuff and for free too. Again, she did way, way more work than I was usually comfortable with. But she was just killing it. There are folks out there that really take it on.

Tom: Yeah. You mentioned trim. It reminded me of when I was in college. I was renting—and when you’re renting (especially when you’re young) you don’t really care about those things as much. The paint was so thick on the apartments that are rented. They just kept painting over it every time someone left. It was like this thick, candy-shell because I would see it chip off and you could see layers behind it. Every couple of years they’re probably painting as someone comes and leaves. And we had the old water heaters and everything. It’s not what I would want as an owner but when I was renting back then, you really just needed a space. It’s not quite the same need for near perfection you’d have if you were buying a house.

Andrew: Yeah, it depends on the stage of your life. My assistant who works with me with a lot of my business, just graduated from college and he’s now all of a sudden going to go look at a house. When you’re used to living with a bunch of people, to go and buy a four or five-bedroom house out in the suburbs, guess what? You can have those four friends you spend all the spend all the time with, paying your rent and covering all of your mortgage. Now you’re pocketing money. That’s going to maximize your retirement. You do that through all your 20s and never house hack again or buy another house or investment property again… I know you’ve talked about it on your show and on your website, it’s the power of compounding interest. If you just get it started and going, it makes a huge impact. If you’re in your 20s, get a place that’s not quite as nice. It may be a little more rundown or a room rental style house where you can live when you get a little bit older, get married, have kids. There are a lot of properties out there both in Canada and US, where you can find really what you’re looking for. You just have to be slightly intentional about it. When most folks buy a house it’s really an emotional decision. With a house hack I can just take one step back and say, “Look, I want to make a different choice. Let me figure out what options will work well and let me just be more intentional about how I pick a property.” And to make sure when I do pick that property that it’s going to have some sort of way to generate income.

Tom: The other concern I would have, personally, is I don’t think I have the skills to be a landlord. What’s involved there? Again, I’m thinking about when I was renting. They were doing laundry one time at one o’clock in the morning and the washer started leaking. It didn’t just overflow, it was actually leaking from the washer. We had to call the landlord and he came and got us a new washer the next day. This seems like it could be quite a drain of time.

Andrew: It definitely can be. Again, it’s sort of where you’re at in life. If you’re younger, maybe you’ve got more time. When you’re older, maybe you don’t. You could look at self-managing. There are a lot of systems and software and services you can do to help streamline that. There is property management software you can get that is either very cheap or free to the homeowner or landlord. They do rent collection. People can put in maintenance requests. The other thing too is, if you don’t want to do a lot of maintenance, you can outsource all of that. If someone wants to become a real estate investor, do a house hack and manage your tenants yourself. After you’ve done that for a year or two, you realize the type of work that it takes. Then go hire a property manager. If you don’t want to do that or don’t have the time, hire a property manager to rent out that space. They’ll take a percentage of that. But the way most folks really look at it is, “Okay, for what I’m going to pay them, it’s worth not having to deal with a potential phone call at 1:00 in the morning. I don’t have to worry about showing it…” All of my properties, with the exception of the house hack—the house that we’re in, I self-manage those. Everything else I always put onto property managers, nowadays. There was a time earlier in my investment career where I self-managed because I wanted to and I didn’t mind spending time, but after a while—you’re right… When my wife and I were dating she’d hear the phone ring at 10:30 or 11:00 at night and she’d say, “It’s one of your tenants, isn’t it?” After a while I was done with that phase of my life; always having to worry about tenants and doing showings. Now, we use property managers for that stuff.

Tom: Back in episode 60, we had Dustin Heiner on the show, and he’s a big fan of outsourcing all kinds of things. If you want to hear more about that go to maplemoney.com/060. With house hacking specifically, even if you want to go with a property manager, let’s say you’re in a duplex and that person knows the owner’s right next door, is there still an issue where you may still get bothered if the property manager is not quick enough?

Andrew: It’s definitely a possibility. But here’s the thing; you don’t have to tell the person that you’re the owner. I’m big on being truthful. But at the same time, you don’t have to say, “Oh, you’re the new tenant… By the way, I’m the owner and I’m just next door.” Just tell them if they have a problem to let the property manager know because you don’t want to let the tenant know the owner lives next door. Most folks do that. The funny thing is, a lot of real estate investors out there, even when they self-manage other properties themselves, they don’t tell the tenants they are the owner. They just say, “Hey, I’m the property manager. Let me go talk to the owner.” That way there’s some separation. So it’s really up to you how you want to do that. If you want to save time, hire a property manager. If you want even more separation tell the property manager not to let them know where the owner is. Just tell them we are tenants—a couple with two kids living next door. That way, if there is an issue, they’re not going to be coming over knocking on your door saying, “I can’t get a hold of the property manager.” There are a lot of ways you can create a separation. By the way, I love Dustin’s stuff. That’s pretty cool that you had him on your show back on episode 60.

Tom: Yeah. And that was another one where I was amazed at just how much you can outsource basically everything. He just builds a team and can enter a different city with a new team—that kind of thing. I did like that. It was very eye-opening. But what I like with this house hacking is it seems a lot more accessible to people. Like I said, people can buy something with a suite already built in. It’s not even a matter of renovating. Beyond that though, how did they get started? What’s different about this? Is it still the same process of getting a mortgage or is there anything you have to be concerned about when there’s tenants involved?

Andrew: One of the things you really want to think about is most loan officers, most banks don’t know what house hacking is. So, if you go to them and say, “I need a loan because I want to do a house hack,” they’re going to look at you like you’re weird, wondering what’s going on. Don’t go to a loan officer and tell him you’re going to do a house hack. Most realtors don’t know what house hacking is either. Some are starting to catch on to the trend. But if it’s something you want to do, I’d say go find a real estate agent or broker that works with real estate investors. That way, when you talk to them about this idea, they’ll understand, “Oh yeah, I get that. That makes sense,” and they can help steer that route. The other thing you want to think about too, is the money is going to be slightly different in Canada versus the U.S. dollar. But when you buy a house in the U.S. and you’re going to live in it, the financing is a lot better than if you were to buy it or not live in it. For the bank, there is less risk. And then the other piece you want to think about is when you go to get insurance on your home, talk to your insurance agent and say, “Look, we have this income suite. We have this basement that we’re going to be renting out.” So, on top of your normal typical homeowner’s insurance, they can add in some extra liability protection for you. Those are just a couple little things I would think about if you want to do house hacking and start to go through the process because it’s slightly different than buying a traditional home.

Tom: Sounds great. Can you let people know where they can find you online?

Andrew: Yeah, my web site is fibyrei.com. I have Facebook, Instagram, Twitter and all of that. It’s, Achieving Financial Independence Through Real Estate Investing. If you want to learn more about house hacking, you can go look up, The House Hacking Podcast, on Apple or Google podcast and Spotify. Your audience is really Canadian so they might check out episode 20 with Maria, who is one of your fellow Canadians and was a house hacker.

Tom: We’ll be sure to link to that in the show notes. Thanks for being on the show.

Andrew: Thanks again for having me on. I appreciate it.

Thank you, Andrew, for showing us that making money through real estate is possible at any age. You can find the show notes for this episode at maplemoney.com/107. Are you a member of the Maple Money Show Facebook community? If not, I’d love to connect with you there. It’s a great place to ask a question or share a recent money win to encourage others. To join, head over to maplemoney.com/community to share with the group. See you back here next week when Jeff Proctor joins us to discuss ways to increase your earning potential with side hustles.