Episode 36: House Hacking Your Way to Financial Peace
How do you move to positive cashflow? It's all about house hacking. Victor Zeledon, graduate of Financial Peace University by Dave Ramsey, is here to share his family's success story and journey into the world of Real Estate.
The Question: How does someone else pay for your mortgage?
Victor Zeledon is an fantastic man who met Lori Alvarez at a Chris Hogan event about 6 or so years ago in Santa Monica, California. Chris Hogan is a part of the popular Dave Ramsey program. If you're not familiar with that synonymous name, Dave Ramsey is all about getting rid of debt and eliminating all of that to move forward in a positive cash flow.
Victor and his wife Adriana have accomplished what most people dream of.
Victor and Adriana began their triumphant journey by enrolling in Financial Peace University by Ramsey Solutions.
They were deeply in debt. Both of them were working hard. Car payments. Credit card payments. Loans.
"That was our life. [...] we were in a bad shape. But through that program, we learned how to budget, we learned how to live on less than we made. And that's how we were able to get out of debt, and to the place where we're at now," said Victor.
So how did they Victor and Adriana get out of debt?
It started with selling their house. Lori recalled, "You guys literally sold the house you were living in to pay off all your debt and start over again."
Sold one of the two cars.
Selling miscellaneous items.
Adjusted their lifestyle.
"I took the bus to work and we just made big sacrifices. [...] we've cut out the cable and the eating out, and the coffee [...] I don't even recognize that life that we lived before. Not that it's wrong for other people. But it's so much of our past that I don't even recognize it now," thought Victor.
Not only did they stick to their goal of getting out of debt, they kept pushing forward and made an American dream come true: they bought a home.
How did Victor and Adriana buy a home?
They enrolled in the NACA loan program.
What is the NACA loan program?
NACA stands for Neighborhood Assistance Corporation of America. "NACA is a a not for profit organization that gives loans to people that probably don't have great credit, or [...] their focus is they focus on payment history, versus a FICO score, versus what most banks look at."
After taking care of various collection accounts during their financial life changes not many banks were willing to give them a shot at a loan. That made it difficult to purchase a home. Even with about $80,000 for a down payment.
With NACA, "it's a no down payment homeowners Assistance Program for first time buyers. And so through that we were able to get our house with your help."
Fast Forward to Today
There are many ways you could get into real estate whether it's buying, selling, investing, flipping, wholesaling, and on and on. Victor and Adriana have journeyed deeper into real estate investing using what's known as house hacking strategies.
What is "House Hacking"?
Victor and Adriana decided to use their primary residence using house hacking, a method to rent out a portion of your house like a room or backhouse and using that income to cover your mortgage.
"That way it turned our house from a liability to an asset," said Victor.
How did they rent out their house?
A room as an Airbnb - a short term rental
A room for 3-6 months to people they met on Airbnb - a long term rental
How is it having a new visitor in your house all the time?
This may not be for everyone. Their home was a 4 bedroom house. Victor and Adriana had the main bedroom, and their son had the other.
Most people are probably not open to having a visitor in their house.
The idea came from someone Victor follows on Instagram.
Victor recalled an idea from him, "The more comfortable you are, the less profitable you make." Which led Victor to think, "If you share a home with nobody, you're not making any money. But if you share a room with one person, or rent a room,[...] you lose your privacy, you lose a little bit of your, your space. So we got a little bit more uncomfortable."
The change wasn't instantaneous. It took some time for their family to be okay with strangers coming in an out of the home with an electronic pin system. "At that time was a little crazy to us, especially our parents are saying, 'you're gonna let somebody in your home that you don't know why you and your, your wife and your son are asleep? It sounds crazy."
And you're probably thinking the same thing. But Victor mentioned to consider, "We live in the sharing economy where we not only do Uber, where we share our cars, where we do deliveries, where people come deliver things to us."
Victor called it adapting to the times—sharing a house with other people. Which many people are in multi-family or shared housing situations.
You absolutely need to have your family on the same page. Their son is a little entrepreneur himself. He set up a snack store for their Airbnb rental at the age of seven! "So he was in charge of taking care of inventory, tracking down how much he sold, how much he made. We even had him do a budget. And through that budget, we were able to do some YouTube videos." Unfortunately with COVID the little snack store had to shut down, but they are hopeful the opportunity will come again.
Adapting to COVID-19
COVID also changed their 2020 plans. The Airbnb Rental room also had to shut down along with the long term rental room.
And this got Victor and Adriana thinking. They could still do a standalone house as a rental somewhere. As they looked around their eyes landed on Central Texas, and thus begun managing an out of state rental. They look a trip in July to see the area, and everything from the price to the location made sense because it was a hot short term rental area. After four rejected offers in the competitive market, they found the one: a house with two properties.
Moving Forward
Instead of shutting down like the rest of the world in July, Victor and Adriana moved their business forward. How impressive right? they kept pressing forward, finding their opportunity and taking it!
What motivated you?
Within Dave Ramsey there is a Debt Free Community that thrives on budgeting and reducing expenses. and through that community they found the Fire Community, based around financial independence and retiring early. and that got their investor brain going to start investing in homes that will hopefully make work optional some day.
Lori Alvarez is also a great follower of the Dave Ramsey Principles for her own life and in the real estate business and personal investments. And she's aiming to passively replace her husband's income, so if one day he decides he wants to retire, he can.
Through starting short term rentals Adriana was able to quit her job, and begin her financial independence! Congrats Adriana!
What's it like buying out of state?
Of course, Victor said it was challenging. During the home searching process you couldn't see the neighborhood like you typically could and having a great neighborhood is a huge plus. So Victor's family planned a trip for three days, and in those three days they saw 27 houses! 27!
Now a lot of those were drive bys, and decided based on the neighborhood feel.
Who is going to fix things?
"I don't have the skills to fix it. So I made sure I found a good plumber, a good house cleaner, a good handyman, that can really work with me if I need them," admitted Victor.
When you look for someone to care for your home you want to make sure they are reliable! And finding a good team out of state is key!
Why did you choose Waco, Texas?
In short, California is expensive. Most people know that. And there was family already in Texas. "I don't I don't remember how exactly we ended up in Waco. But I knew of Waco through Magnolia, you know, Chip and Joanna Gaines of the Fixer Upper show? And I remembered they buy homes for like $80,000. They fix them up. And even with the rehab, they're probably like 200,000. And I said, Yeah, that that's my budget."
How much of a down payment did you need?
The home was $170,000, at 10% down ($17,000), and the seller paid for the closing costs. What a steal right!?
How do you know it's a good deal?
You have to feel comfortable with the positive cash flow number. It's whatever makes sense to you. A client once said to Lori, "if I'm making a buck on every deal, I'm happy with a buck, because your time in real estate is really equity."
What is a comfortable number?
There are a variety of strategies to rent out your home. Victor was deciding between the 1%, where you rent the home out for at least 1% of the price of the home and deciding to cover basic costs.
Victor knew what he wanted covered by the tenants:
The mortgage covered
The utilities covered
Maintenance covered
Once all those are covered it's positive cash flow and as Victor said, "not only are the tenants covering your house payment, but you know, you're you're you're benefiting from the appreciation, the equity, and also the depreciation when it comes to taxes."
Lori said, "That's a real win, my friend. One of the biggest wins you can do in life is to eliminate your housing expense. It's the most costly thing in your personal life, financially."
How do you manage things?
Victor uses an app, so he can manage the communications and properties from wherever he is and with only a couple of hours a week invested.
Any words of wisdom?
Make sure you're on a budget
Live below your means
Anticipate your expenses
Save for a downpayment
Look at the market you want to be in
Get as much information as you can online
Run the numbers
Do it if it makes sense
How did you get your wife and your son to be on page?
Finding a partner that has the same vision and goals as you is important. Victor said, "My wife and I, we really are pretty much on board with with everything in a way. Not only our investing, but the way that we parent our son, the way that we live our life, even what we eat, where do we go and it's really great."
Victor and Adriana knew they didn't like being in debt. Once they found out their "why" and attached it to the goal, they were focused. "Every step that we take is a step that will get us there."
Such a great success story.
From debt, to home ownership, to investment properties. And they made it happen, found the opportunities, worked with the right people, and did it as a family.
What is an Airbnb Ambassador?
Victor and Adriana were selected to be Airbnb Ambassadors by the company. While the platform is there, it may not always feel simple to get started with your Airbnb. An Ambassador helps you set up your rental and walks with you through the confusing parts at no cost to you! Airbnb pays an Ambassador a referral fee, but it's no cost to the new potential hosts.
Airbnb Ambassadors are there to help you with things like:
Signing Up
Writing your Listing
Applying for City Permits
Finding the right people
Dealing with guests and reviews
and more!
*How can you rent Victor and Adriana's Airbnb?
So if you're thinking of starting your own Airbnb, you can find Victor and Adriana at www.Airbnb.com/r/signupnow and take a look at their profile to see their rentals.
Or find and follow them on Instagram at @OurJourneyWithLess
Lori's Tip: Invest where you want to retire.
Victor's final words
"Just wanted to say thank you to Lori to Amy. And anybody that's out there. We had a great experience with them too, when we were buying our home in California. And honestly, I still don't know how Lori and Amy were able to, to pull this house that we're at. Not only was it their skill, set their expertise, their creative ways to get it done. But obviously I do think is part of even God's plan for us to be here."
"You're moving forward in your real estate and you're doing exactly what you love. And that's very inspiring, because that's what we're about: Living the life we love not doing the work that we don't love," said Lori.
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Lori Alvarez has been in the Real Estate Industry for almost 15 years. If you’d like to contact her call her at 909-227-4196. She loves helping families find their home sweet home.
909.227.4196 | KW Realty, DRE 01794115
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