House Hacking: How I Got Started in Real Estate at 23

Derek Pearson is an active real estate investor who comes from a family of generational real estate investing. He is also a mortgage officer and consults others who are looking to invest in real estate. His grandfather owned apartment complexes. His father invested in apartment complexes, storage units, and single-family residential properties. This knowledge was passed on Derek, who started investing in real estate in his early 20s and currently has a multimillion-dollar real estate portfolio. Nothing was handed to Derek but the knowledge, know-how, and encouragement from his mentors. Derek started his real estate investing journey through house hacking. He said, “It was the only way for a college student to afford to start investing in real estate without financial help from an outside source.”

In this article Derek shares with Mashvisor investors how he got started in real estate investing through house hacking.

How I Got into House Hacking

When I was in my early 20s and still attending college, I had a couple of mentors who told me that I needed to start investing in real estate. I was single and working part time while attending college. I was terrified to start investing in real estate, but with the encouragement of my mentors I was able to find my first property to purchase.

At this point I was scared out of my mind. But after talking through my fears with my real estate mentors, together we concluded that house hacking would be the best strategy for my situation. Remember, I was a full-time student and working part time, so I did not make enough money to pay the full mortgage by myself while still saving up for college tuition. With house hacking, I was able to lower my monthly expenses (not paying rent), while actually investing in real estate.

Once I decided on my strategy, the next step in getting started in real estate investing was finding a suitable property.  I had a good family friend who was a real estate agent and had worked with dozens of investors who were doing the same thing I was – house hacking. This was a benefit because he knew exactly what kind of property I was looking for.

He went on the property hunt and found me multiple properties that worked for my strategy. All I had to do was to go look at the properties in person and then double check the numbers to see if they made sense for me before deciding which property I wanted to buy.

By the way, I highly recommend getting a great real estate agent that has worked with investors before. Many real estate agents claim they know how to work with investors and know what a good investment looks like, but unfortunately that is not true. Do your due diligence and make sure the agent knows how to find what you are looking for.

Here were the parameters I gave to my agent for my property search. I knew that I could qualify for a monthly mortgage payment of $1,600 a month. I knew that the average room rental for the area I was looking at was $500 a month. I did not want to spend more than $500 a month after renting the other rooms out.

My first property was a 3-bed, 3-bath townhome. My mortgage payment was $1,200/month. I rented out 2 of the 3 rooms for $500/month each, and I was left to pay $200/month for my own real estate property. After I saw how well this house hack worked, all my spare money went into saving enough for another down payment on my next house hacking project.

Expanding My Real Estate Investment Portfolio

My second house hacking project was a 4-bed, 3.5-bath single-family home. I moved in the home and rented out the other 3 rooms. My monthly mortgage payment was $1,700, and I rented 3 rooms out for $475 each, which made my portion of the mortgage $275/month. My new housing expenses were now $0/month because I turned my townhome into a fully occupied rental property with a positive cash flow of $300/month.  I now owned 2 investment properties and was living rent/mortgage free.

My third house was another single-family property with a mother in law apartment built into the basement. I was recently married, and my wife and I decided to live in the basement apartment and rent the upstairs out so we could decrease expenses. The mortgage was $1,900/month, and we rented the upstairs out for $1,650/month, which left our cost to $250/month. In reality we were now living for free and actually making rental income from my first two properties. I was now making $500/month in rental income from my first two properties.

I continued the house hacking real estate investing strategy until I had purchased five properties.

Related: 10 Best Cities for House Hacking in 2021

My Recommendations

If you are young, single, married without kids, or in a situation where you can move frequently, house hacking is the ideal real estate investment strategy. Investing in real estate in your early 20s can be scary, but it is possible. House hacking is an easy way to get started without having to change your lifestyle or increase your expenses too much. Those five properties that I used the house hacking strategy with now have over $700k in equity and make me an extra $2,000/month. I purchased all these homes as owner occupied because I lived in them until I had enough to buy another house. With the house hacking strategy, you do not have to make more money to buy another house because the rental income offsets the debt on the house.

In conclusion, do not wait to invest in real estate. Because each extra day that you wait, you are losing money and paying someone else’s mortgage.

Why not start paying your own?

Final words of advice.

I would encourage you to find a mentor who has invested in real estate before. If you do not know someone, you can reach out to me. I am happy to help. My contact info will be provided. This will make the process so much easier for you. Make sure you protect your credit score and minimize your debt and expenses. The debt to income ratio, credit score, and down payment will be three pillars you will need to become an expert on to successfully investing in real estate.

Leave a comment below if you’d like to get connected with Derek for advice on how to get started in real estate investing.