How I live for FREE by House Hacking and investing in Real Estate

What's up you guys? It's Graham here. So, so many people have asked me to make a video of how I live for free by house hacking and investing in real estate. So, I wanted to break down my exact numbers with you guys, share exactly what I'm doing, and maybe some tips and stuff along the way that you can use as well.

Now, what are the best ways to do this? One of the best ways to cut down on your expenses is doing what I like to call house hacking. It's basically buying a multi-family property, like you could in a duplex, triplex, or four-plex, however many units, moving in one of the units, and then renting out the others to cover your housing costs and expenses. So, basically, if you could just save up a down payment on a place, you can either live entirely for free from there or cut down on your housing costs dramatically.

Now, this is something I've talked about a ton on my channel, but I've yet to share a first-hand example of this in the real world and really break down the exact numbers. And because everyone appreciated the openness and transparency of my last video with my 2017 income breakdown, I figured I would do the same type of video here and break down my exact numbers. This is pretty much also just practicing what I preach and sharing with you guys exactly what I'm doing as well.

Now, keep in mind my example here is not a perfect example of house hacking. Los Angeles is one of these areas that's insanely expensive, and finding anything that even remotely cash flows is just a feat in and of itself. So, keep in mind that this is much more doable in other low-cost housing areas outside of Los Angeles, outside of like San Francisco, New York, places like this; it's gonna be much easier to do this. These are my numbers, and then I'll share some ways that you can do this as well and set something up similar in the future.

So, let's first start about where I live. I ended up moving into the duplex I renovated, so I can refinance it as an owner-occupant at a lower interest rate than if it were an investment property, therefore lowering also my debt-to-income ratio. I can then buy and qualify for a more expensive rental property later on in the year. I also rented out the last property that I bought, which also increases my passive income; it also just increases my income and then allows me to qualify for an even larger loan whenever I go and buy another property.

So, I pretty much saw zero downside in moving into the duplex, and it saved me a ton of money that I can then use to go and reinvest in more real estate. Now, I have to say this before the internet trolls come out, because they're gonna say something like, "But Graham, you have $250,000 invested in that, and the average person who's watching your channel doesn't have $250,000 to invest in it," just like on some spam, like, "Okay, I'm exaggerating a little bit." But in all seriousness, yes, I do have $250,000 invested in this place.

But keep in mind this is pretty much West Los Angeles, where things are just insanely stupidly expensive, and pretty much every other part of the country, you can get away with putting down a lot less money. Frankly, $250,000 in many parts of the US will buy you a place outright to live in. So, even though I'm using my example in Los Angeles and I'm putting a lot of money down, just realize that that is such a small subset of the United States and, you know, Canada or North America, and many places where you don't need that much money down, and places aren't selling for such a high amount.

But anyway, we'll still use my example of house hacking in Los Angeles just so I can show you guys the exact numbers behind what I'm doing. And then one last thing before I get into it, the reason I was able to save up the $250,000 is because I pretty much save almost everything that I make. I try to keep my expenses down; besides spending it on dinosaur skulls, I pretty much just save everything. So, that's why I always encourage, save, save, save, save, save, and invest because that's going to put you in situations where you can afford to do these sorts of things and buy dinosaur skulls one day.

So anyway, enough of that. My total expense for the duplex is $3,100, broken down as follows. The first is my mortgage that includes principal and interest over 30 years; that works out to be about $2,200 per month. The next is my property taxes, and that works out to be another $585 per month. The next is my insurance that runs about $120 per month, and then I have another $200 per month in random expenses like a gardener and other little things here and there. So that brings our total to about $3,100 per month out of pocket.

Now, because this is a duplex, it means I also have another unit that's being rented out to help offset my costs. Now, the unit next to me is rent-controlled, and it's way under market value, but even so, I still get about half my expenses paid off every single month. So this means I'm pretty much just paying $1,550 per month to own a multi-family property in Los Angeles that's 15 minutes away from the beach and like 7 minutes away from downtown LA.

It doesn't get much better than that! Or actually, it kind of does because of that $1,550 per month out-of-pocket, about $800 of that per month goes straight towards paying down the loan, which goes towards equity in the property. I also get to write off the mortgage interest on this property against my personal income and also against the rental income I receive. This also works out to be a savings of about $400 per month.

I also get to write off the property taxes against the income I receive from the other unit and against my own income, and this works out to be about $80 per month. And then I saved the best for last, and that is this mega tax write-off right here that I'm making videos in, this detached 420-something square foot studio that I can write off against the housing expenses from where I end up living.

So, in the end, I end up actually coming out ahead to own a multi-family property in Los Angeles. From there, I've calculated that whenever I re-rent the unit next to me for market price, whenever they decide to move out, that will lower my out-of-pocket expense to only $400 per month. Then, when you account for the equity building up every month and all of the other tax write-offs, I will actually end up profiting by about $1,200 per month to house hack and live for free in Los Angeles.

Now, one of the things the other internet trolls might start to say, because they're there and they're watching, they're gonna say something like, "But Graham, you're forgetting the opportunity cost of that $250,000 that you could be investing elsewhere." And yes, you know, I totally acknowledge that there is some opportunity cost in that down payment. But the way I see it is that I need a place to live. I've got to live somewhere. That's a cost that is gonna be coming from somewhere, so it may as well go towards buying something, renovating it, building some equity in that that would offset any opportunity cost that I would otherwise get in another investment property and get somewhere pretty much to live for free at the same time.

Plus, this is going to end up being an amazing rental property in the future, and I'm just gonna be cash-out refinancing anyway to buy something else, so it doesn't really make much of a difference in terms of opportunity cost. But I'm sure some of you guys might think, "Yes, well, it's not really living for free because even though you're paying down the loan, you can't really do anything with that money unless you sell or refinance, and you're still out of pocket every month $1,550, and you don't really see any of those tax benefits until you file your tax return in April." So in essence, you still need to cover that $1,550 per month deficit every month in order to live there and reap those benefits.

Fair, but it doesn't end quite there because I have four other rental properties that generate enough income to offset the $1,550 per month deficit that I have living here. It also generates enough income to also pay for any of my car expenses, food bill, utilities, and everything else that comes along with Graham being Graham, including $5.00 Subway sandwiches. But that's more so of just a cash flow thing of money in and money out.

If you also factor in the equity I'm building and also the tax write-offs associated with that, I actually come out ahead about $3,000 per month to live entirely for free with pretty much all of my bills paid. Now, this doesn't mean that I had the cash flow to go out and like buy Lambos every day and like bottle service every night, but at Mastro's and like live like a king. But at the same time, that allows me the freedom to really focus on the things that I really enjoy doing and not really be a slave or not have to worry about, like, "Oh no, you know, I can't buy a subway tonight."

Stupid, stupid jokes. I don't know where I get these jokes from; that's not even a joke. But this also means that everything else I make from working as a real estate agent, from YouTube, from other little sources that I have going on, I can save and end up reinvesting into more rental properties, which just increases the passive income that I can then use to up my lifestyle and maybe buy a, you know, a $7 Subway sandwich instead of a $5 Subway sandwich.

So this is exactly how I've reduced my expenses to house hack and pretty much live for free between that and investing in real estate. Now, I've said this many times before; I'll say it again. This took me about ten years to do. It took me four years to save up for my first rental property, and from there, it took me pretty much another six years of saving pretty much everything I made, living super frugally, not spending a lot of money to continue buying more rental properties, continue doing this, learning, making more money, working as a real estate agent, increasing that business as well.

It took me about ten years to do all of this. So, even though I'm sure to many people it seems like a wild goal, it's still something that took me pretty much a decade to do. I'm not saying it's unrealistic; I'm not saying it's out of reach. It's just realistically not something that can happen after a year or two. Chances are, this is something that you can work towards over the next five to ten years to make this a reality.

So, in the bigger picture here, it's really just about cutting back on your expenses with things you don't absolutely need. That ends up saving you money. The more money you save, the more money you can invest, and the more money you invest, the more freedom you can get because you have that safety net, you have that buffer, and you have some passive income coming in to help offset your daily living expenses. When this happens, you're basically slowly working towards freedom of really doing what you find most enjoyable, and you could pretty much start the same thing right now.

Now think of it this way, and I'll use some really simple numbers to break it down here. Let's say you go to work, and every single day you make $100, but between your housing expenses, car payments, food, and everything else that goes along with you being you, that costs you $95 per day. The way I would see that is that you're going to work every single day just for $5 because you have to think you're spending $95 basically just to live, and that leaves you with only $5 a day left over to really do what you want.

It also means that you have to consistently go to work earning $100 a day just to maintain that lifestyle. Now, if you can reduce what you spend your money on and also increase your income, you can start saving and investing money to bring you in more passive income that allows you to really do what you want with your time.

And here's the best way you can start doing that right now, like literally right now, when you're finished with this video: start tracking your expenses over the next thirty days. Either set up an Excel sheet and track every single time you spend money down to the penny and also include the income that you make at the same time, or you can also do it on mint.com, which is what I personally use. I really like Mint. Some people don't trust it; some people find the Excel sheets are a little bit more accurate—it's up to you.

And then at the end of the 30 days, look through that and see, first of all, how much money you actually have left over. Is it more than what you thought you would, or is it less? And then from there, look through all of your expenses and determine where you can start cutting back, or if you ended up buying things that you later regret or that maybe are just sitting in a closet, or that just didn't really bring any enjoyment—things you didn't really need.

It's also a lot easier to cut back on expenses than it is to try to make more income. Let's even take the example of a $4 coffee every single day. In order to spend that $4, you really need to make more like $5 to pay taxes on that to be left with $4 net to buy that $4 coffee. So, everything that you're spending money on is actually a little bit more expensive when you consider that you have to make money on that, pay taxes on that, and then you're left with a smaller amount to then go off and spend in which case you also pay sales tax on top of that, which just makes it a little bit more expensive.

That's why it's pretty much always easier to cut back on expenses than it is to try to make more money. Now, don't get me wrong; increasing your income is also extremely important as well, but it's not as easy immediately as just reducing your expenses right off the bat. And then from there, it's about actually saving what you don't spend.

Still enjoy life; I'm not telling you just to live like a hermit crab and stay indoors all day and just be like, "Oh no, spending money, no, no." But, I mean, you get the idea here. It's a fine balance between spending money on things that you don't fully enjoy and appreciate versus spending money in areas that really bring the most value and benefit to your life.

And then by doing this, you're able to save more money, invest more money, and then reinvest that. Again, all of this is really just about having the freedom to do what you want when you want to do it without having any sort of job or obligation holding you back from doing that. That is the big purpose of this; this is the big picture of this.

And because I know so many people want even more detail about exactly how they can house hack and what I look for in that, I will make videos about this probably in the next week or so, so stay tuned for that. Also, make sure to subscribe if you haven't subscribed already and smash that notification bell so you are aware when I do upload that house hack video, that you are going to be the first one to see it.

Feel free to add me on Snapchat and Instagram; I post there pretty much daily. So, if you want to be a part of it there, feel free to add me there. Finally, I set up a private Facebook group for anyone who's interested in real estate, either real estate investing or working as a real estate agent or pretty much anything real estate related. The link is in the description. Again, it's a really cool private Facebook group.

Everyone is super supportive of each other; it's a really great community. I highly recommend if you're interested in real estate at all, it's worth it just to join it. If you don't like it, you can always just unjoin or whatever—no risk in that. It's entirely free, so really no reason why you shouldn't do it. Just do it; trust me on this one.

Again, thank you for watching. Hope you enjoyed this, and smash the like button. Until next time!