How to Live for Free in Your 20s

Part 1:

A step-by-step guide to eliminating the biggest cost from your budget - your rent!

The title might sound like clickbait, but I have lived for almost a whole year without paying a dime for shelter. The best part is that anyone can do it! I was able to stop paying rent at 23 while building equity in something that will last - real estate.

All it took was a year of saving, living below my means, and a lot of research on how to execute. I'm sharing this strategy so that you don't have to spend as much time as I did trying to figure it out on the fly - I'm giving you the steps, technology, tools, and an all-encompassing guide on how you can make this happen.

This series of articles will walk you through the following steps to pull this off:
○ The concept of "house hacking"
○ How to find the right property
○ How to finance the property (with low-to-no money down)
○ Closing the property (This was my first time - if I could do it, anyone can)
○ Finding a tenant
○ Drafting an air-tight lease
○ How to be a good landlord

Using Real Estate to Live for Free

You don't have to pay your rent. Yes, you. It doesn't matter if you don't have a high salary, a lot of money in the bank, etc.

"But How?"

By investing in real estate. Not just any real estate, but real estate that pays for your rent or mortgage. There are a few ways to do this, but I'll share my way. I purchased a duplex, one property with two units. I'm currently renting one side and living in the other, and the rent that I collect pays my mortgage every month. This strategy is known by most as "house hacking."

Sounds pretty simple - but you're probably thinking "where do I start?" I began by pouring through endless articles trying to understand what to do from A to Z. I had never purchased a house, managed a property, or even financed anything before. It was intimidating, especially without a guide that walked me through what to expect. Despite all of this, it ended up being far easier than I ever would've expected. I just wish I would've had a guide to reference instead of piecing information together on my own. This was by far the most time-consuming part.

As a result, I've decided to document the process to make it easier for countless others to begin their path toward financial freedom. This should cover everything you need to know, specifically the things that are tricky or often left out of other articles. I'm bringing it all together here so that this can serve as your all-encompassing guide to house hacking.

How to Find the Right Property

So you decided that you want to house hack and live for free. Where do you start? Well, you should immediately start saving your money. You won't need a lot, but you can't expect to get a property for free. Investing in a property is a massive responsibility - you'll need some rainy-day funds. In most cases, you'll also need some money for a small down payment, closing costs, et cetera. We will dive deeper into that later. But for now, a few months' worth of living expenses in savings is ideal, as it is in any case.

While you're saving money, you'll need to begin searching for the ideal property. For this, you'll need patience and some guidance on how to qualify the house. To start, check out, or any listing site that you prefer. I live in Des Moines, so a google search for "Duplexes for sale in Des Moines" gave me the perfect list. Depending on your market and the time of year there will likely be a few options available.

If you live in a hot market where houses are selling like crazy, you'll need to do some extra work. I've found that networking with good realtors in the area is the most effective way to find the best properties early. A good realtor will pass you leads before they even hit the market, meaning that you won't have to compete with others that are scanning public listing sources all day. Realtors are always willing to help, you're giving them business by reaching out. A good realtor will understand your goals - bonus points if they're familiar with investing and house hacking in particular.

Don't limit yourself to duplexes if your market doesn't have much to offer. This strategy can work for any piece of real estate - anything from four unit properties to single-family homes. Just remember, you'll have to live in the property you buy to take advantage of a low down payment option (more on that later). Duplexes seem to be the sweet-spot, as they are generally affordable, offer you your own private space, and can often collect enough rent from one side to pay the mortgage. Anything bigger than a duplex becomes more difficult to both afford and manage, and a single-family home would require you to live with roommates. Some people really hate living with roommates, but if you don't mind, this can be the simplest and most affordable way to house hack. I know folks in single family homes that have made enough from roommates to pay their mortgage plus some.

Once you have an idea of what suites you best, start to put together a list of properties that you like in the categories that you're considering. My goal was to find a property in an area where the rent from one side could cover the whole mortgage, or at least most of it. Also keep in mind that this needs to be a property that you're comfortable living in. If you're picky, you'll either need to be patient or lower your standards.

The easy math behind house hacking

To find out if the property meets your financial goals, you can lean on a few tools to help run the numbers. One is for rent prices. It'll give you a rent range based on other properties in the area so that you know what to expect. It's usually pretty accurate and I rely on it for all properties I analyze. Rentometer offers a free trial, but if you don’t want to shell out the cash there are other options. You can check and to find comparable rental properties in the area, along with Craigslist or any other sources you can get your hands on. I find the rates from running my own comps to be more accurate than what rentometer suggests in most cases - however, rentometer offers a much quicker rule-of-thumb estimate to get an idea.

Ok, so now you know what you can charge for rent, What about expenses? You should account for the mortgage, homeowner’s insurance, and property taxes, and also build in some savings for maintenance, etc. Private Mortgage Insurance (PMI) will also be necessary if you plan on putting less than 20% down, which I , and most house-hackers, do.

The ReDeals Calculator will take care of all of this for you.

One quick rule of thumb, and we will dive deeper into this in the financing section:

In most cases, 3.5% of the total property price will be the lowest amount of down-payment that you can get away with.

For example, if a property is worth $200,000, then you’d need a $7,000 down payment ready on closing day ($200,000 x 3.5% = $7,000). Any loan higher than 80% loan-to-value (LTV), meaning any time you put less than 20% down, you’ll likely need to pay PMI. This is usually 0.5% to 1% of the purchase price per year, divided and paid monthly along with your mortgage. A conservative mortgage rate right now is around 3.75% APR.

It’s always best to use conservative estimates so that you can manage your expectations. I would use something in that ballpark when estimating your loan. You can look up the property tax amount for where you live online. For example, the property tax where I live is 1.64% of the house’s assessed value per year. So where I live, for a $200,000 property, you’d owe $3,280. Divided by 12 for the months in a year, you’d owe $273/mo. Don’t worry - you can pay this automatically when you pay your mortgage. Both that and insurance are paid monthly into escrow with your mortgage provider.

So now you've estimated both your revenue and expenses...

If your revenue is greater than or equal to your expenses, then you’ve found yourself and investment property that will allow you to live for free. Even if you still have to pay a couple-hundred bucks a month toward the mortgage, you're winning. Each month, you’re gaining equity in the property (money that is yours to keep) and it beats paying full-rent anywhere else. Have fun running the numbers on all of the deals you run across!

Join for part 2 next week where we will dive deeper into financing options.