• Real estate investors Todd Baldwin, Ali and Josh Lupo started out by “hacking a house”.
  • Home hacking is a strategy of renting out part of your home to offset your mortgage.
  • This allowed them to eliminate their housing costs, build wealth and become financially free.

Todd Baldwin believes that real estate is the most tried and true way to generate wealth.

It is not necessarily easy. It takes time, dedication and tenacity, “but it’s pretty straightforward,” he told Insider. “If you just buy real estate and keep it for 20 years, you’re going to sell it for a lot more than what you paid for it.”

Investing in properties does require capital, however. You need money to put down a deposit to cover closing costs, for example. Baldwin, who bought his first spot away from Seattle for $ 506,000, said he put in 3.5% less and paid about $ 19,000 upfront. He had a 9 to 5 job at the time that was paying six figures, which helped him save for upfront costs.

Buying a house also means taking out a mortgage, but Baldwin, 23 at the time, realized he could live for free if he rented part of his house to pay off his mortgage. This is a strategy known as “house hacking”.

He and his girlfriend (now his wife) moved into the master bedroom and rented out the other four bedrooms, which more than covered his monthly mortgage. This meant finding compatible roommates and having a lot less space, but it saved her more money to invest in a second property.

Baldwin continued to buy rental properties over the next two years, and by age 25, his net worth exceeded $ 1 million, mostly from rental income, he said. At 28, he became a multimillionaire and felt comfortable leaving his 9 to 5 to double real estate.

He is expected to make more than $ 1.5 million this year from real estate, according to documents seen by Insider, but he and his wife continue to “hack the house” and live for free today. They live in a duplex that they have transformed into a triplex by transforming the garage into a studio. They live in half the duplex and rent the other half, plus the garage.

Ali and Josh Lupo also hacked their home to get into real estate and afford their first home. Unlike Baldwin, neither of them won six figures. In fact, the upstate New York-based couple were deeply in debt on a student loan and were living paycheck to paycheck when they bought their first duplex.

The FI couple ali and josh

Ali and Josh Lupo bought their first home despite high student debt.

Courtesy of Ali and Josh Lupo

After reading about home hacking, they analyzed the numbers and realized that by taking on more debt on the mortgage, they would actually be able to pay off their other debts faster. At the time, they were paying $ 1,300 in rent. But the numbers showed that if they bought a duplex in the right price bracket and rented half of it, they would be able to significantly reduce their monthly housing payments and free up extra money for their loans.

That’s exactly what they did: They closed a $ 155,000 duplex in 2018, moved into the bottom unit, and rented the top one for $ 725, which covered more than half of the price. their monthly mortgage payment and reduced the cost of their housing to around $ 660 per month. , they said. A year later, they raised the rent after doing some modest renovations, further lowering their housing payment to $ 460 per month.

About two years later, Ali and Josh expanded their real estate portfolio and bought a second duplex, which means they are now receiving rent for three units. That’s enough to cover both mortgages, so they live for free and earn an additional $ 150 in profit each month, they said.

Home hacking not only allowed them to speed up their debt repayment – they expect to have paid off their $ 102,000 in student loans by early 2022 – but it also paved the way for freedom. financial. By cutting expenses and creating multiple sources of income, Lupos keep 100% of what they earn from their daily work and are on the verge of retirement at age 40.

Ali has already switched to working part-time as a school social worker, and Josh, who is self-employed, is starting to downsize; he works around 30 hours a week on career counseling for workers with disabilities and diversity and inclusion training for companies.

Home hacking can be very effective, but “it’s really important that you run it like a business,” they stressed. “Because it’s a business. Your tenants are your customers. When they have a request, you must respond to it as soon as possible. When something breaks, you are the one who needs to fix it. “

Plus, when tenants move out, in addition to potentially losing a month or two of rent, you usually have to spend time and money fixing the unit before the next tenant arrives, they said.

“We are not sharing this to deter people, because real estate has completely changed our lives and has long helped people build wealth,” they added. “But sometimes we see online highlighters of people just cashing rent checks, and there’s actually a lot of work to be done.”