House Hacking: A Young Investor's Wealth-Building Strategy

JB's house hacking strategy at 25 sets a strong foundation for his wealth-building journey.

### House Hacking at 25: Navigating Rental Property Decisions
* 🏠 Kudos to JB for successfully house hacking at just 25 years old, demonstrating a **smart approach to homeownership** by renting out part of his property.
* 💰 House hacking allows individuals to **lower their mortgage costs through rental income**, making it an effective strategy for **building equity and wealth**.
* 🔑 JB is considering turning his primary residence into a rental property, which is a **common progression for many homeowners who have successfully house hacked**.
* 📈 It's important to recognize that while rentals typically come later in the financial order of operations, JB's situation arises **naturally from his previous living arrangement**.
* ⚖ As long as JB continues to **save 25% for future investments** and adheres to his financial plan, transitioning to a rental property is not out of alignment with his financial goals.
* 💡 However, JB should carefully evaluate the potential tax implications, such as the **$250,000 tax-free gain for single individuals**, before deciding whether to sell or rent the property.
* 🔍 Additionally, he must assess his cash flow and ensure he maintains **adequate emergency reserves** to avoid any financial strain from this transition.
* 🌟 Overall, JB's proactive steps in house hacking have set him on a **strong path for wealth accumulation**, making this a **commendable financial move**.

[Music] All right, ready for JB's question. M John briyan, it's actually spelled out J A Y, then B E E. That's not John bran NOP JB, that's JB. He says, I'm house hacking, but I'm moving soon with a plan for a full rent on this property. I'm 25, and the property is 1 of my net worth. Am I violating the financial order of operations following all other steps? See, so I am following all other steps with a separate emergency fund. I'm assuming that's for the real estate. Um, what do you think? Well, one, kudos to you for being 25. For those of you that are not familiar with the nomenclature, house hacking means that JB bought a house, but instead of just being in that house by himself, he had either had roommates or it was a duplex, and he was able to rent out a room or rent out part of it, which is amazing. It's an incredible way to efficiently and effectively get on the

side of home ownership while kind of quote unquote hacking the system, which I love that. And so now, well, the hack is you get lower interest rates, you're going to qualify probably for cheaper homeowners insurance and other. So there's a lot of benefits, and we love this strategy. And so there's not, it's not uncommon for someone to start that way, and then they continue saving, and they build equity, and it turns into a valuable asset. Well, then it comes time for them to move, and it sounds like that's where JB is. And so JB says, well, I'm going to move, but I've got this house, and it's wonderful, and I've already got at least a tenant in there, or maybe I already have someone who's willing to pay the full note. Am I out of whack if all of the sudden this turns into a rental property? I don't think it is. Even we know that rentals are something that happen when you get further along in the finance. Brian, will you hold the thing up even though rental.

property in real estate happens when you get further along, when you get in like step seven, step eight of the financial order of operations. If it's something that happened naturally because it was your primary residence and it doesn't become your... and then it's not your primary residence and even keeping the rental, you're still saving 25% for the future and you're still following the food and you're doing your other stuff. I don't think that that's super out of whack, and I think what you've done is you've like giving yourself a really healthy head start on your wealth-building journey. Agree, disagree, want to fight? No, I think this is good, and I want to give JB credit for being on the right side of Johnny GL too, is because I see so much social media content where people say, you know, go apply for a loan as a primary residence because it's lower interest rates and lower costs, and then you don't move into it, you just immediately turned it into rental property. That's fraud. That's fraud. So JB

did it right. He actually house hacked this, and now he's potentially turning this into a full-time rental. You do have a few things you need to measure twice on, though, JB. Here's the first thing: when it's your primary residence and you lived there two out of the last five years, for single individuals, it's a $250,000 tax-free gain; for married couples, it's $500,000. So, I always tell people immediately, make sure you do a measure twice, cut once on, do you just want to take the money and run, because you more than likely, especially if you bought this free inflation, you've made a lot of capital appreciation that could be completely tax-free since this was your primary residence. If you don't, if you look at that, you go, It's just not that big of an impact. I still think like the idea of turning this into a rental. Then now we need to look at the cash flow impact and your emergency reserves, and if those things, if you're on the right side of them, meaning that

you you you take into account your 3 to 6 months, and you then take into account what does this do from a monthly cash flow to where I'm not messing up my savings rates and all the other things. I think it's perfectly fine, but just don't skip the homework of actually going through those exercises to make sure you're on the right side of this and not taking on too much risk. 25 years old, oh, that's incredible. That's a while.

My Rental Property Is 1/5 of My Net Worth (Am I Violating the FOO?)

Bring confidence to your wealth building with simplified strategies from The Money Guy. Learn how to apply financial tactics that go beyond common sense and help you reach your money goals faster. Make your assets do the heavy lifting so you can quit worrying and start living a more fulfilled life.

Subscribe today to stay up to date with our latest episodes, livestreams, and highlight videos: https://www.youtube.com/c/MoneyGuyShow?sub_confirmation=1

Are you ready to go beyond common sense when it comes to your money? Check out all the free resources The Money Guy Show provides: https://moneyguy.com/resources/



The Money Guy Show

JB, at 25, is successfully house hacking by renting out part of his property, which is a smart strategy for home ownership.

He plans to move soon and transition the property to a full rental, with a tenant already lined up.

JB is following the financial order of operations and has a separate emergency fund for real estate, making his transition to a rental property a viable move.

Property acquisition in real estate is more effective when it aligns with the later steps of the financial order of operations.

Transitioning from a primary residence to a rental property while saving for the future can be a smart wealth-building strategy.

However, applying for a loan as a primary residence with the intention of turning it into a rental property is considered fraudulent.

Turning a Primary Residence into a Rental

The individual has house hacked their primary residence and is considering turning it into a full-time rental.

There are significant tax-free gains to consider: $250,000 for single individuals and $500,000 for married couples if the property was lived in for two out of the last five years.

It's important to measure the cash flow impact and assess emergency reserves before making the decision to transition to a rental.

It's important to consider your cash flow over the next 3 to 6 months to avoid disrupting your savings rates.

Taking on financial commitments is fine, but it's crucial to do the necessary homework to assess the risks involved.

Being mindful of these factors can help you make informed decisions and maintain financial stability.