How I Live In a Waterfront House for Free

Well, I guess the title may be a little misleading. Nothing is free. All free means is someone else is paying for it. A more appropriate title may be “How I live in A Waterfront House that Someone Else Pays For.” How great does that sound? Waterfront living is typically an exclusive luxury reserved only for the wealthy. I’ve always heard this and even used to believe it myself. It has been my dream to live on the water all my life. To have my boat on a lift in my backyard, and at the push of a button, I’m cruising. Swimming and fishing whenever I please. It was always a pipe dream, like what you read about in books or see on TV. Getting the elusive beach or lake house is a common life goal for many. “Once I live on the water, I’ve made it.” The elusiveness is somewhat justified.

Depending on where you live, waterfront homes can cost millions of dollars. Even if you are somewhere more affordable, you will pay a premium for these coveted properties. I achieved this life-long dream at 27 years old, yet I don’t have millions of dollars. I didn’t hit Bitcoin big, no inheritance, and while I do well in my career, it is nothing astronomical. My secret, which I figured out a few years ago, has catapulted me above many others in my cohort, House Hacking. Some people reading this may be familiar with this concept, and others may have never heard of it. For those who haven’t, I’ll explain.

House Hacking is simply purchasing a property that you will live in while simultaneously renting it out. There are different ways to do this. You could buy a Single-Family Home, Condo, or Townhouse and rent the other bedrooms out. You could purchase a house with a garage apartment, basement, or ADU and rent that out. You could also buy a Multi-Family Home, think Duplex, Triplex, or Fourplex, live in one unit, and rent the other units. This is the route I chose. I had lived with roommates for four years in college, and while it was great at the time, it was no longer for me.

I started with a duplex outside of Kansas City, Missouri, in 2018. I purchased the home for $130,000 using an FHA Loan, 3.5% down. It was a decent property, turn-key, and on a cul-de-sac in a blue-collar neighborhood. I rolled my closing costs into the loan and closed with less than $5,000 out of pocket. Boom, I was in the game. My mortgage payment on the home, including taxes and insurance, was around $900/month. A long-term tenant in the other unit paid $715/month. While there are expenses, vacancies, and additional costs associated with homeownership and rental property, I had effectively cut my monthly housing expense to $175/month. That was as big for me as it would be for anybody. So often, we hear about the $5 a day Starbucks coffee that is destroying our ability to save and build wealth. I was paying $1,200/month for my studio before purchasing my duplex, essentially cutting my housing costs down by $1,025/month or $12,300/year. I could buy 7, $5 coffee’s a day or 205 a month for what I was saving. I knew I wasn’t going to chase $5 a day. I thought bigger. I wasn’t going to be Penny Wise, Pound Foolish.

Additionally, I thought about what it means for my income if I can save $1,025/month in housing costs. Remember, everything we pay for is done so in after-tax dollars. My effective tax rate was around 18%, so to pay for that additional $1,025/month, I had to earn $1,209/month or $14,514/year. By eliminating this from my expenses, I viewed this as increasing my income by $14,514/year. I was hooked and knew I would never go back, at least not anytime soon.

I was relocated for work by my company about a year later and knew I would rinse and repeat. I was a few years out of college at this point, took a promotion, and my salary had grown exponentially. I could buy a nice Single-Family Home or gorgeous downtown loft. My salary justified it, and all my peers were doing it. That’s what we’re supposed to do, right? A bigger salary means a bigger house and a newer car. Lifestyle inflation/The Hedonic Treadmill is as synonymous with consumerism and being human as it gets. This is how we are programmed, and when everyone around us is doing it, it only feels natural. I knew I was on a different path, however. So instead of having my realtor send me all the $300,000 Single Family Homes and Condos, I set up my search for, you guessed it, Multi-Family Homes. I ended up purchasing an off-market Duplex for $183,000 after driving around to different neighborhoods and seeing a guy carrying a ripped carpet out of a house.

I had already analyzed 50-100 properties, toured about ten, and made three unsuccessful offers at this point. This was the third property on this same street I had looked at, and the second I made an offer on. I stopped and asked what their plans were for the property. They said they hadn’t decided, but a tenant had just moved out, and they were turning the unit. We ended up chatting for about 15 minutes and came to an agreement on terms right on the spot. I had also toured the duplex next door which was for sale, completely remodelled, and listed at $290,000. The area I purchased in had very few multi-family homes. This happened to be one of the only streets where 40 years ago, about 15 duplexes were built surrounded by Single-Family and Townhomes everywhere else. When the sellers of the duplex said what they wanted for the property, I knew I was getting it for about $0.80 on the dollar. I had already done my due diligence and was able to act immediately. I purchased this home again using FHA financing, 3.5% down.

I still owned my property in Missouri with FHA financing, but as I was relocated for work, I was able to use FHA financing again. There is a common misconception that FHA financing is only for first-time homebuyers. This is false. The rule with a couple of exceptions (one just mentioned) is you can only have one FHA loan at a time. This time I didn’t roll in closing costs, and it was around $10,000 cash to close. My mortgage, including taxes and insurance, was $1,050/month, and the existing tenant was paying $750/month. My new housing payment, $300/month. More expensive than my previous place, but I had a good amount of built-in equity and was in a highly appreciating market two miles up the road from a very large beach resort destination. Also, I still owned the duplex in Missouri and converted the unit I lived into a rental. This property was now cash flowing around $200/month after accounting for management, expenses, cap-ex, and vacancy. Minimal cash flow, but considering I only had around $6,000 cash in the deal and spent maybe 30 minutes a month reviewing statements, it was a strong start. Include amortization, tax benefits, and projected modest appreciation, and the return on my cash invested was over 100%.

I lived in this 2nd house hack for two years, and because I purchased it at a discount and prices have skyrocketed since I bought it in 2019, I refinanced to a conventional loan and dropped my PMI. I also sold my property in Missouri in September 2021 as it had appreciated significantly, but more than that, I wanted to free up my FHA financing. I considered refinancing but ultimately chose to sell.

Fast forward to today as I sit on my deck looking at the water. I am on my third house hack in 3 years, a fourplex which I purchased for $545,000 using FHA financing in October 2021. I didn’t roll in closing costs, and it was around $35,000 cash to close. I used the proceeds from the sale of my first property, the duplex in Missouri, to fund this new property. This was incredibly rewarding in itself. Over the course of three years, starting with $4,000 cash and a duplex, I have traded up to a $545,000 four-unit property simultaneously still owning my 2nd duplex house hack, which cash flows around $500/month accounting for all expenses mentioned previously. My payment on this new property is $3,100/month. I have two tenants on annual leases bringing in $1,000 each and one unit that is an Airbnb (30 days and longer stays) which has averaged around $1,400/month in the off-season. I am in a beach town, so this will double in the Spring/Summer. Combined, this more than covers my expenses. I may even have positive cash flow. I guess I could change the title to “How I Get Paid to Live in a Waterfront House.” When I move, I should be able to cash flow around $2,000/month on this property after accounting for expenses.

As I’ve shared my journey with friends and family, I often hear, “That’s great, I’m going to do that.” The reality is 99% never do. The further reality is while this sounds so great and simple, the truth couldn’t be any further from this. For the challenges, is the payoff worth it to me? 1000%. Is it worth it for everyone? Absolutely not. It’s not meant for everyone. The truth is most people don’t have the skillsets, personality traits, or even the desire to be a landlord. It can be incredibly difficult, and the ability to wear multiple hats is essential. However, if you possess the will and put in the work, the reward can mean achieving a life-long dream at 27 years old.