When I learned about the concept of house hacking, I immediately became obsessed with how I could do it, too. What if I hacked my own single family home by selling it, then investing in a duplex and living in one half of the duplex while renting the other?
At its most basic, house hacking means finding a way to earn money from the space where you live. You could Air BnB it, take in a roommate, or rent out a spare bedroom out to make some extra income. Since housing is one of the biggest costs in most people’s lives, finding a way to optimize this cost is something that can help you set aside more money to reach financial independence sooner. Seduced by the success stories I heard on podcasts and read in blogs about all the house hackers who were optimizing their residences, I decided the biggest obstacle in the way of financial independence was my house.
Like many people who discover the financial independence (FI) movement, once I was woke to the concepts, I was already well immersed in what’s popularly known as lifestyle creep. This meant that with every passing year, I had been rewarding my slowly increasing income by adding the accoutrements befitting someone advancing in her career. A bigger car, a nicer house. Never mind that our 2% raises (which in some years after the 2008 financial crisis didn’t even happen) technically only cover inflation! I feel flush with cash, so I’ll save my money and research which giant new SUV I will purchase after I’ve saved up for several months. I’ll need something big enough to cart my two children around town, along with their friends, something resembling an armored car to protect us in the event of a collision. This purchase will be deeply satisfying, because I will get multiple dealer offers on the Internet, find the color I want, and pit one dealer offer against another to get the best bargain two hours away from home.
House buying regret
As I began analyzing my life for examples of lifestyle creep, I started regretting the house we had bought almost five years ago. At the time, I thought of it as a dream house: big, high ceilings, hardwood floors, and an extra living room that I furnished with replicas of a Barcelona chair and a Castiglioni arc lamp with a two-hundred-pound marble base, all very practical for a house where two young children reside. On good days, perhaps three times per week, when I’m not stalled by earlier insomnia and/or middle-of-the-night toddler wake-ups, I get to sit in this vast, cool space from about 6:30-7 in the morning, drinking my morning cappuccino. You could call it meditation time, but mostly it’s just try-to-wake-up-and-be-grateful-nobody-needs-me-yet time. The rest of the house is consistently buried in small plastic toys, the kind that grow and multiply of their own accord, but I manage to keep them out of this space.
Our new house cost twice as much as our old house and was less than ten years old when we moved in, which is a big deal when you live in Florida and the assault of extreme weather prematurely ages everything, from houses to humans. It is on the front line of a fancy neighborhood, the only disadvantage being our location on a busy street, which was why we were able to afford to buy into the exclusive community of Desperate Housewife residences that sprawl out behind us. At least every six months or so, we’ll be awakened in the middle of the night by a large boom, the sound of someone driving home from the nightclub down the street and misjudging the speed of the parked cars. Another advantage of our location is the proximity to a National Guard training facility a few hundred feet away, which means quick power restoration in the event of a hurricane.
Despite the minor drawbacks, it’s a really nice house, but once I learned about house hacking, I felt a great deal of shame and guilt. We had too much house. Our house has two air conditioning units, for God’s sake, and if that doesn’t make you feel guilty about your contribution to climate change, what will? Why did we think we needed all this space when my grandparents used to live in a one-bathroom farmhouse with two kids, and it was just enough house for them? Property values were on the rise (along with our tax bills), and Zillow was constantly sending teaser emails informing me that the house had gone up in value over $100K more than we’d paid for it. (I know, I know, Zillow’s not the most accurate source of housing values in the world, but those emails can be so convincing). I persuaded my husband that we should sell it, rent an apartment somewhere, and use the profits to buy a few more rental properties to speed us along the path to financial independence. We agreed on a minimum price that we weren’t willing to go below, including a buyer’s agent commission. This would still put us a hundred thousand over what we’d paid for it, and we decided anything below that would be too disruptive and not worth the hassle of moving.
My parents, always the voices of reason (and also residents of the same house for over forty years), cautioned us against this move. It would be disruptive for the kids, who have community pools, parks, and an elementary school within a ten-minute walk. Moving would be stressful. We were finally living close to our jobs, which was one of the original goals of our move. And we liked the house – when we got it, I had been trying to get into this neighborhood for years, obsessively chasing foreclosures until I found something we could afford. But I’d been thinking about doing this for a while and was ready to make the move. I had taken the real estate exam and gotten a real estate license after selling our first house without an agent and enduring the verbal abuse of the mansplaining buyer’s agent, who kept telling me I didn’t know what I was doing. I knew I could do this. Armed with my real estate license, I would battle any buyers’ agents who tried to badger me into price reductions, or to insist I needed to be represented by an agent they knew personally who would help me out.
Putting your dream home on the market
I took some photos with a fancy camera and listed the house with the same low-fee company that we had used to list our first house on the MLS. I remembered how, with our first house, we were under contract within a week, with multiple offers, and how we’d held a successful open house where 15-20 people passed through, offering flattering praise for our swimming pool oasis, and for the renovated kitchen that my husband had completed single-handedly.
Within minutes of our current house’s listing going online, I got a phone call from an agent who said he was in the market himself, and who wanted to see it immediately. “Is there room to put in a pool?” he asked. “Of course,” I told him. He sounded serious. I left work early, went home and frantically cleaned in preparation for his visit, tossing stray toys in boxes that I shoved into my car, along with baskets of unwashed laundry and a dead houseplant. The car in the garage now looked like someone might be living in it, so I parked it far from the house. Our garage looked so big and inviting – we’d even put a lot of our stuff into storage, another American lifestyle creep activity I swore I’d never take part in, but it definitely helped create the effect that we just happened to be ready for an IKEA photo shoot.
But when he arrived, our first agent-visitor sped through our house as quickly as an HMO doctor with a patient quota. He asked some questions about the roof and the appliances and assessed the yard, agreeing with my estimation that a pool could definitely fit back there. Then he was on his way. Less than an hour later, my email dinged with a notification from our listing service. The agent had left MLS feedback, there for all the agents of the world to see. “The house was very clean,” he started out, leading with a compliment. However, he hadn’t noticed the cool gray Benjamin Moore White Dove paint we’d put throughout 70% of the house, but the dated mustard yellow in one of the bathrooms. “Paint colors are dated,” he’d written. The appliances were close to the end of their useful life, and the roof needed replacing. And the street noise! Let’s not even go there.
Still optimistic, we prepared for our first open house that weekend, buying bright yellow balloons from Party City and Open House signs to station around the neighborhood. We’d spruced up the bathrooms with extra touches like sea grass baskets filled with folded white hand towels, glass bottles of seashells, pieces of driftwood, and other Ross Dress-for-Less accessories designed to convey the impression that living in our house was like visiting a restful seaside spa. The kids (the antithesis of the restful seaside spa effect) were sent off with the babysitter, armed with a candy budget and my assurances to the toddler that an “open house” just meant we were going to let people come and look at our house while it was really clean. We put out a guest book for people to sign, and after the first hour, when it featured only two names (one from a woman who immediately cornered me about the street noise and said she’d make a generous offer to give us what we paid for it four years earlier), we started making up names for the guest book. We decided Peter Martinez, Olga Bennett, and Jefferson Steward III had all taken a look.
The second hour wasn’t that much more promising than the first, although a couple who came on their own and weren’t represented by an agent said they really liked it. They told us they’d offer us $15,000 under asking price on the spot, and we laughed and said no. We added a few more imaginary names to the guest book, then picked up our kids and invented a game for the ten-year-old to try to identify which names in the book were real and which were fake while we celebrated the completion of our first open house with an expensive dinner at a Puerto Rican restaurant.
After another open house the following week, where the bulk of attendees ended up being neighbors in search of free cookies, I began to get discouraged. Then I realized something: there weren’t a lot of people looking in the price range we had been foolish enough to get ourselves into, and the ones who could afford that price range all wanted a completely renovated house, without the original contractor-grade cabinets still in the bathrooms and kitchen. In other words, if we could make our entire house like the modernist living room, we might get the price we wanted.
I continued to feel bad about owning so much house, but winter break had come, so we took it off the market and decided to rethink our strategy. My husband repainted our bathroom and our “dated” kitchen (Panera green, color chosen by the previous resident, a Panera executive, who had painted the whole house in Panera colors) to a crisp gray-white, installed an on-trend Carrera fishbone tile backsplash, and painted all the cabinets white.
At this point the house looked better than ever, and even I was starting to have regrets about putting it back on the market. But forge ahead we did, continuing to pay an un-FI price of $99/month for our storage unit, where all our children’s toys now lived, much to their distress (along with boxes of towels and sheets that I realized actually do come in handy when a stomach bug strikes the house). We listed it again—with a price reduction!—and the couple that had made us a serious offer returned, with an agent this time, to offer us the exact same amount. We puzzled over this development (why had they come back with an agent?) but declined their offer and went ahead with an open house. We had one other family who came to look at it a second time, but only a few low-ball offers were trickling our way, which we quickly rebuffed before agents got serious about writing something up.
Where do we go now?
There was one additional problem. In a hot market, even if you’re renting, where do you go? My initial house hacking idea was to get a mortgage on a duplex, rent out half, and live in the other half. My agent friends all told me there aren’t a lot of duplexes or triplexes in our area, and when I started searching, I could see that they were right. There were plenty of weird old houses with sheds out back advertised as “mother in law studios,” or 1000 square foot duplexes where my family of four could live in half of that for $300,000, i.e. a 500 foot studio for four people. I must admit to looking a little closer at the miniature rooms IKEA designs in small spaces, but my family members weren’t too crazy about the idea. Rentals in the area were a possibility, but they cost even more than our mortgage. I’d spent two years finding this house, and even if I now regretted how much it cost, at the time it had seemed like a bargain for where we wanted to be: in the middle of everything, walking distance to shops and restaurants and in the closest thing to a walkable area our city could offer.
Then the couple who had made us an offer started leaving us notes. They loved the house, they said, and they really wanted it, they weren’t with an agent anymore, so could we call them? I spent thirty minutes on the phone listening to the wife tell me all the flaws with the house and why their price was perfectly reasonable. Also her husband was from a place where houses are built with concrete, and he didn’t want to pay a lot for “cardboard American houses.” I got it, I told her. I understood they had decided on the market price for our particle board house with its thirteen-year-old appliances. The problem was, we had decided on another number, which we saw as the cost of uprooting our family to go live in a moldy rental in a hot market, all in the name of financial independence, and we didn’t want to go below that number. I also had a bad feeling that if I gave in, these earnest potential customers were going to find even more problems throughout the inspection process, and that we might find ourselves taking even more concessions. It was possible, I could see, that we would uproot our family just to break even.
And so we gently extracted ourselves from those negotiations, pulled the house from the market, and declared that house hacking wasn’t for us, at least not right now. We undoubtedly lost a lot of money and time during that little experiment, but it’s all part of the FI learning experience.
They say that the three biggest drains on the family budget are housing, food, and transportation. And although I can’t help but feel a little jealous of those footloose twenty somethings who discovered the financial independence movement a good twenty years before I did, and who are now living in an RV in their backyards while they make $5,000 per month on Air BnB, I have to keep reminding myself that we are all in different stages of life, and the very things that prevent me from renting out all the bedrooms in my house to traveling nurses are the people in my life whom I’m most grateful for. For sure, we have more house than we need (after staying with my two kids for a month in a windowless one bedroom in Madrid this summer, I’m acutely conscious of our privilege). But for now, I’ll focus on mastering my beans and rice game instead, and keep enjoying those cappuccinos in the six a.m. dark.