3 "Owner Occupant" Strategies to Build Wealth
3 Owner Occupant Strategies
There are 3 basic strategies to leverage your primary residence to jump start your real estate portfolio. These strategies align with your long term plan and are to be used in conjunction with the Equity Trifecta criteria.
The 3 basic owner occupant strategies are:
1- Stepping Stone
2- BRRRR Ownership
3- House Hack
Stepping Stone Strategy
Buy a starter home, increase value and build equity, then sell this home and use the proceeds to step up into a larger home.
The Stone Strategy isn’t really investing in real estate, because you never convert the liability to an asset (you never convert the regular payment into recurring income).
At this point in the course, you may be thinking… I don’t really want to own real estate as an asset long term. While I may not agree with you, it’s your life and you can do what you want!
The Stepping Stone Strategy is for you if you simply want to make a strategic 1st purchase, build equity, then sell for $50,000 to $200,000 MORE than what you bought it for. This is a very common strategy that many homebuyers utilize in order to afford a nicer home.
Again, as long as this is your strategy going in, this is a strategic move!
BRRRR Ownership Strategy
BRRRR Ownership is short for Buy, Reside, Relocate, Rent, Repeat. In other words, buy a home with the intention of keeping it for a rental long term. You could Reside in the property for as little as 1 year, but could stay as long as you wanted or needed to in order to save up for your next purchase. (BRRRR Ownership refers specifically to living in the property, not to be confused with BRRRR Investing, which is similar, except you never live in the property itself).
BRRRR Ownership is a moderately aggressive strategy that allows you a relatively comfortable living situation while saving for your next property. While living in this property, you save up a down payment for your next property, because you are planning to keep this 1st one as a rental.
You can repeat this process as often as every year for up to 10 years. At that point, the lenders will cut you off and you’ll have to get more creative (that’s another course for another day).
If you decide the BRRRR Ownership Strategy is right for you, notice how this changes your intention going into the purchase. Yes, you will be living in the property, temporarily. Amazingly, when you view the purchase as a temporary living situation, you reduce the pressure on yourself to make the perfect decision.
In addition, you are looking for a property that will make a good rental property long term. This intention will alter what improvements you make to the property immediately and over time. For example, if you were planning to live there for 5 to 8 years, you might just spring for new kitchen cabinets and quartz countertops. But, if you’re planning to live there for 18 months, then move and convert the house into a rental, you might instead spring for a new roof and formica countertops.
House Hack Strategy
House hacking is when you create an income stream from the property you are living in. Options include: Purchasing in a 2, 3, or 4 unit property, living in 1 unit and renting the other units; Or, buying a single family or townhouse, renting one or more rooms to roommates; Or, any of the above, but renting to AirBNB guests instead of traditional tenants.
House hacking is the most aggressive Owner Occupant Strategy. This method is not for everyone, but this strategy allows investors to build their portfolios the fastest with little to no money down.
Just like BRRRR Ownership, you can repeat this process yearly, up to 10 properties with most loan programs available.
- Buy a small multi-family property with a low down payment such as 5%. On a $600,000 property, this is $30,000 down payment.
- Move in & Rent the other unit(s).
- Live with a lower monthly housing payment.
- Save up another down payment.
- Repeat yearly for 10 years+ keep the original property as rental.
- Own 40 units in 10 years = Retire Early!
Why House Hack?
- Personal Finance | House hacking reduces or eliminates your monthly housing payment + converts your monthly rent liability into a monthly mortgage liability. In time, this liability will be paid in full with the properties income; At that point, this property is officially a cash flowing asset!
- Low Down Payment | Many would-be investors cannot get started because they lack the 25% down payment. House Hacking allows you to get started building your rental portfolio immediately by taking advantage of Owner Occupant Financing.
- Entry Level Investing | Living on-site gives you an opportunity to learn the fundamentals of property management; Eventually, you will likely hand this off, but you will fully understand what your managers are doing on your behalf.