This story is about Marie Keefe who began her career working as a residential real estate paralegal. She has since transitioned to commercial real estate, where she spends her 9-to-5 working for a mid-sized commercial real estate advisory firm based in Boston. She specializes in office, lab, and multifamily redevelopment projects. Starting with one house hack, she has since gone on to grow a small rental portfolio of her own, including 12 apartments and a 30-key boutique hotel located in Maine.”
By the time Marie was 30 years old, She had effectively become a self-made millionaire – or at least, pretty darn close to it. It sounds unlikely however, she is no hotshot attorney or tech entrepreneur. In fact, Marie is not unlike any other “kid” her age. The only thing that sets Marie apart was her decision to begin house hacking in her 20s. She purchased her first live-in investment property when she was 25 years old. In this case study, we will show you how Marie parlayed a meager $17,000 investment into the +/- $1 million she has today. You’ll see that you, too, can use the house hacking strategy to make money from your house.
Why Marie Started House Hacking
Marie had always been interested in real estate. Her parents and grandparents had each invested in rental properties over the years, although at a time when real estate was significantly less expensive than it is today. Nonetheless, she saw the benefits that owning investment property could bring.
Marie first started looking at condos back in 2008 when the real estate market first tanked. she was working for a real estate law firm at the time, so she had a front-row seat to the housing collapsed. After touring dozens of properties with a real estate agent, she pulled back, fearing that a live-in investment property would be too risky at this time (in hindsight, it would have been the perfect time to invest).
Fast forward to 2013. Marie was 25 years old and had recently started working for the City of Somerville, a municipality located just a few miles north of Boston. While working for the City, Marie started learning about the major investments that were planned in and around the area: new transit lines, several mixed-use development projects that would bring thousands of jobs, infrastructure improvements that would create wider sidewalks and café seating. There was so much to be excited about. Now would be the time to buy a live-in rental in Somerville. Housing values had begun to recover post-recession but they were still affordable enough.
Again, Marie initially assumed she’d buy a condo because she thought that’s all she’d be able to afford (more on this to come). But in a twist of fate, when she started her new job, she shared an office with someone who was not only a Realtor but a firm believer in house hacking. He had purchased his own live-in multifamily investment property and as a result, lived for free. He urged Marie to look at multifamily properties, too, and actually served as her new Realtor as she toured properties throughout the city.
Finding Marie’s First House Hack
Finding the first house hack wasn’t easy for her. Most of the homes in Somerville were two- and three-family income-generating properties (locally referred to as “triple-deckers”). The housing stock is old, with most homes being built sometime in the late 1800s or early 1900s. Most of them need a lot of repair work before becoming a live-in rental.
That said, these multifamily properties were a developer’s goldmine. House flippers had started coming in to buy properties with all-cash offers, and would then renovate the properties and flip them for a profit. The city’s proximity to Boston and surrounding universities (Harvard, MIT and Tufts) made it attractive to college students, young grads and other renters. So when Marie started out to find her first house hack, she had a lot of competition. During one open house, She even had a flipper tell her “not to bother, missy” because he was going to buy the house for all cash.
New England’s notorious winters finally played to her favor. A duplex had hit the market on the eve of a major snowstorm, and the open house was oddly scheduled for 2:30 pm the next day (a Tuesday). Since Marie was both living and working in the city, it was easy for her Realtor and her to duck out of the office for a few minutes and get to the open house that day. Open houses would typically draw dozens of people, but on this occasion, people were too busy prepping for the impending blizzard. Her realtor and Marie quickly made an offer for $400,000, which was $20,000 below the asking price. The seller’s agent came back to us and said the first person to submit a full priced offer would get the deal. So, as apprehensive as she was about making such a huge commitment, they came back with an offer for just that – asking price. They had her first live-in investment property under agreement by the end of day.
The Home Inspection for Marie’s First House Hack
In addition to Marie’s realtor, she had her then boyfriend (now husband) and mother tag along during the home inspection for her first house hack. Her mother was aghast. Marie’s mom was thinking how possibly could Marie live in the first floor unit of this tiny little house?! The layout was horrible, the kitchen was falling apart and there was absolutely no cabinet or counter space in this live-in rental!
Meanwhile, Marie’s husband was worried about structural issues. The floors were sloping and after poking around in the basement, he was convinced that the live-in investment property was going to blow over in the wind.
Marie took a deep breath and her Realtor reassured her that she could make this house hack work. “Just trust me,” he said. “A few 4” nails here and there and this puppy will be stronger than ever.”
There was no doubt that the house was going to need work, but if she wanted to start house hacking in Somerville, that was a risk she needed to take. The market was heating up so quickly and she thought this could be her only chance.
The home inspection was for Marie’s informational purposes only. At this point, the sale had become contentious. The sellers were going through an ugly divorce and the wife had recently been arrested for tax fraud. They were being forced into the sale of their family home and refused to cooperate beyond what they were legally obligated to do. This meant that under no uncertain terms would they be making repairs prior to sale or knocking anything off of the sales price. Fortunately, the home inspection – which included a report by a structural engineer – confirmed what Marie’s realtor had suspected: most issues were cosmetic and could otherwise be repaired, even if it would be costly.
Financing Marie’s First House Hack
Marie’s next step was lining up a mortgage. As mentioned earlier, she didn’t think she could afford an owner-occupied investment property. At the time, she was only making $65,000 a year – hardly enough to cover the mortgage on a $420,000 home on her own. She used one of those online mortgage calculators and was led to believe that house hacking was out of her reach.
But here’s what Marie didn’t understand at the time and soon found out.
When buying a multifamily investment property, the bank uses 75% of the rental income generated by the other unit(s) and factors that into the income you use to qualify for the mortgage. The house hack she was buying included two units: the first-floor live-in rental that she planned to occupy was a one-bedroom, one-bath unit. The upstairs unit was a four-bedroom, one bath unit. she suspected that she could rent that upstairs unit for roughly $2,000 per month, which meant that the bank would tack $1,500 onto her monthly income. This was now the income they used to qualify Marie for the mortgage.
Having worked in real estate law, Maire was pretty familiar with various lending programs. She knew that she’d be able to qualify for what was then known as the “Massachusetts Soft Second” loan program. These mortgages were issued by traditional banks (in her case, Citizens Bank) as two separate loans. The first was a traditional loan for 80% of the purchase price. The other was for 17% of the purchase price. This “soft second” loan was guaranteed by the state (similar to an FHA house hack), and as such, allowed her to put down only 3% as a down payment. What’s more, (and unlike an FHA house hack) the program does not require you to pay private mortgage insurance (PMI), which saved her hundreds of dollars each month.
At the time, the City of Somerville also had a first-time homebuyers’ program that offered up to $3,500 in closing cost assistance that was forgivable in five-year increments. As long as she stayed owner-occupying the investment property, 1/5 of the loan amount would be forgiven each year until the loan was discharged at the end of the five-year term.
Here’s a quick recap of the numbers on Marie’s first house hacking deal:
- Purchase Price: $420,000
- Down Payment: $12,600 + closing costs (approx. $8,000)
- Closing Cost Assistance from City: $3,500
- Total Out of Pocket Costs: $17,100
- Loan Amount: $407,400
Marie’s total monthly mortgage payments wound up being $1,985 per month. This includes principal, interest, taxes, and insurance (PITI).
Remember how Marie thought she could rent the upstairs unit for $2,000? Well, a quick paint job and new carpeting later and she had it rented out within days for $2,400 per month. This is how she started making money from her house. Marie wound up making $400 per month and started living for free. She’s been living for free ever since.
Renovating Marie’s First House Hack
As mentioned, her unit needed some work. The first-floor unit had been used as a below-market, live-in rental apartment for years. Her mom was right about one thing: the kitchen was terrible and needed to be gutted. Marie wasn’t sure where to begin. Her Realtor, who was also a registered architect, walked her through a few ideas.
He guided Marie through a redesign that involved moving the unit’s entrance, relocating the kitchen to the living room, taking down the wall between the old bedroom and the living room thereby opening the space for a combined kitchen/living room area (an open floor plate that people love!), and moving the master bedroom to the kitchen’s former location. Marie closed off an unused hallway and turned that into a master bedroom closet. She relocated the bathroom and found more space for a tiny office area to be converted into a full-sized bedroom, thereby converting the 1-bedroom unit into a 2-bedroom unit (a move that added a ton of value to the property and would help her make more money from her house later on).
Of course, this was more than paint and carpet and wound up being pretty expensive. All in, she probably spent close to $50,000 on renovations. To be clear: the unit would have been completely livable had she not invested this money in renovations. Also, she could have house hacked, lived there for a while, and rebuilt her savings before investing in any improvements.
Renting Out of The First House Hack
Marie rented the upstairs unit faster than she had imagined. She closed on the home on June 10, 2013 and spent the next few days painting and installing new carpets. She had an open house to show the unit the following week and had found renters to move in by July 1st.
Marie chose to rent to a mother and her two adult sons. She was somewhat apprehensive. Her credit was terrible but the mother explained that it was a result of a bad divorce and some steep medical bills, but she had always paid her rent on time. Marie called her references and this checked out: the mother/soon-to-be tenant had never been late on a rent payment. The new tenant and her family continue to rent that unit from Marie today, and seven years later, still have never been a day late on their rent. Marie has even upped the rent slightly over the years. They now pay $2,600 which helps her make even more money on her house.
Marie lived in the downstairs unit for just over five years. She house hacked her way to living rent free during this time. In 2018, after having recently been married and with her first child on the way, her husband and Marie decided to move a bit further out of the city where they’d have more space. Her husband and Marie, both firm believers in house hacking (he had done the same before meeting Marie), decided to buy a multifamily investment property yet again – but this time, a more expensive duplex in a tonier suburb. When they moved out, they rented that first floor apartment in Somerville for a staggering $2,700 – a price that multiple people were willing to pay given the renovations and two-bedroom optionality. In total, the rent collected was $5,300 per month from the two units, which the initial purchase price was a 420,000 multifamily house just 5 years ago.
With both units rented, Marie now collects more than $3,000 a month in profit from her first house hack. That income goes towards her mortgage at her new multifamily house hack where she then continues to live “rent-free” today.
How House Hacking Has Helped Marie Live Rent Free and Grow Rich
Buying a live-in investment property is Marie’s single smartest financial move. She had good timing. She purchased the property in 2013 for $420,000 and the home is now worth approximately $850,000 today (2021). Marie parlayed an initial $17,000 investment into more than $430,000 in equity. A great thing to note is that she also been able to sock away cash because house hacking has helped her live for free ever since.
Marie purchased her second owner-occupied investment property in 2018 for $815,000 using a 20% down payment. In 2021, just over two years later, that home was recently appraised for nearly $1 million. Combined, Marie has more than $800,000 in equity in these two homes. She took out a home equity line of credit on her first house hack, which she has since used to buy another investment property in Maine (this time, a boutique hotel – but that’s a whole different story unto itself!).
And that’s the great thing about house hacking. With a small down payment, thanks to loan programs like the Soft Second mortgage or the FHA house hacking programs, you can start making money from your house. This “little” investment helped Marie to grow her savings and in turn, live stress-free. Marie didn’t have to stress about monthly mortgage payments or credit card bills. Also, she doesn’t even worry about the sky-high cost of daycare, because the rent she collects through house hacking covers most of her bills.
In Conclusion
Not everyone wants to become a landlord, but one take away from this story could be: the occasional middle-of-the-night phone call is certainly well worth it when you consider the benefits. House hacking is a great investment for anyone who’s looking to get ahead in life once and for all!
