"House Hacking, Landlording, and Winning"
Property Management & Investing Expert
Episode 38: "Best Deals"
Listen to the Podcast Here:
On today’s episode of The Real Estate Nerds Podcast, Lucas Hall joins our host and real estate asset protection attorney Scott Smith. Today’s episode was cut live at FinCon 2018, so be sure to check out the Royal Legal Solutions YouTube Channel for some video extras from this and other bonus material from the conference. Although there was plenty to do at FinCon, Lucas was kind enough to sit down and share the short version of one of his best deals. He also told us about Landlordogy and the tools that have helped him succeed as a single-family investor.
Lucas Hall on Househacking and The Art of Landlording
Scott Smith welcomes Lucas Hall onto The Real Estate Nerds Podcast. Together, the pair of investors discuss Lucas’s unusual motivation for making his first investment, and how a deal that didn’t appear all that great ended up being a win in the long run.
[1:45] Lucas is mainly a buy-and-hold investor focusing on single-family homes. We’ve heard lots of reasons for investors getting into real estate, but Lucas’s stands out: he had a crush on a girl who had closed on a house at 23. So naturally, he did the only logical thing–bought a house in her neighborhood.
[3:00] While Lucas was able to add some roommates to the property and hack the house for profitability, it didn’t come close to meeting the 1% rule. Lucas explains the 1% rule for the uninitiated: “If you buy a house for $200,000, you should be able to command $2,000 in rent monthly to at least cover your costs and make a little bit of money.” His property was near Capitol Hill in D.C., and Lucas essentially lived in the house rent-free and later used the equity to buy a condo.
[4:30] While Lucas may not have gotten his 1% monthly, he did get the other thing he wanted: the girl. They have now been married for a decade.
[6:00] On its own this house isn’t incredibly profitable. So Lucas has taken an unusual approach to making this property work for him–hacking the property into a group house. Rather than renting to a single family, he rents to a group of six adults who each have their own rooms and common areas. Together, they pay approximately $5,000/month–almost double what Lucas would gain from a typical family.
[7:00] Lucas’s wife actually helped him devise this house-hacking method. He purchased the house in 2005, a time when there weren’t as many online materials freely available for new landlords. Lucas learned by reading and doing, and later began blogging about his experiences.
[8:58] Lucas continues to run Landlordology, a website full of resources on the art of being a landlord. He also works for Cozy, a company that creates software tools for Landlords. He describes his ideal audience as anyone with roughly 20 units or less. Lucas has essentially developed the materials he wished he had when starting out for the benefit of others.
[10:40] Lucas compares learning to be a landlord to learning to fish. He describes Landlordology as a collection of best practices and the tools to be successful.
[11:55] Scott asks Lucas about his current personal investing endeavors. Lucas recently purchased his first vacation/short-term rental property in Colorado. He shares some of the differences between managing this type of property compared to his typical investments. “In order to be really successful, you have to manage a joint schedule on multiple platforms,” Lucas explains.
The Takeaway: Your Approach Can Be What Makes The Deal Work
Lucas and Scott conclude this episode of The Real Estate Nerds Podcast by highlighting their major takeaways from Lucas’s story.
[13:00] Scott points out that to some, Lucas got into real estate for the ‘wrong’ reasons, but he still achieved his own goals. Even with a less-than-ideal deal, Lucas was able to engineer solutions to make it work and help many other investors in the process.
[14:40] Lucas concurs: “I’ve had that ‘bad’ property for thirteen years and been renting it to groups…Even if it was a bad deal upfront, if I sold it today, I’d make a decent return on it.” The two investors agree it is impossible to know when you enter a deal
[15:00] Lucas adds that factors beyond your control are often impossible to prepare for, but that real estate allows you to “wait out” bad scenarios.
Connect with Lucas Hall
Connect with Lucas Hall via his website, Landlordology. You can also chat with @Landlordology or Lucas directly on Twitter, where he is @LucasEHall. Lucas is also active on BiggerPockets.com. If you want to reach Lucas directly, email him at firstname.lastname@example.org.
Thank you for joining us on today’s episode of the Real Estate Nerds Podcast.
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About Lucas Hall
Lucas Hall is an independent landlord, investor, and IT consultant of 13 years, with dozens of tenants and a profitable income property portfolio. Lucas is also the Founder of Landlorogy, a premier education website that reaches over 4 million landlords and renters per year. Landlordology provides educational tools and resources for landlords, property managers, and renters, including articles, software, practical real estate tools and more.
When making business decisions that affect your long-term goals, like what types of investments to make with your retirement dollars and which vehicles to use, it really is best to be aware of all of your options. We frequently talk about the Solo 401(k) and Self-Directed IRA as tools for funding your retirement. But what about life insurance? And what about the stock market? What if we told you there is a tool that allows to to reap some benefits of both? It’s called Indexed Universal Life Insurance–and some investors have found it a useful addition to their retirement plans.
What Is Indexed Universal Life Insurance?
Indexed Universal Life Insurance (IUL) plans are a variety of permanent life insurance plan that features a cash-building element. One primary benefit of these plans is that the policy holder gets some of the gains of being associated with the stock market without all of the risk Wall Street is famous for. This is in no small part because of how these policies are designed. IULs earn in part because they are directly linked to a market index, such as the Dow or the S&P 500. Any gains remain within the policy, albeit a cap rate will limit how much you can make. However, you are protected during a particularly bad year for your index with an IUL. The worst case scenario with these plans is that you make nothing, but you never actually lose money no matter how poorly your index performs. The protection of your principal is actually derived in part from the same cap rate that limits your gains.
How much money do policyholders stand to make? Historically, returns run between 5-9%. The S&P Index has actually returned at 9-11%, but the upside limit on UILs stems from the account’s cap rate. For this reason, many advisors argue that the UIL can make a wise addition to a retirement or estate plan once more traditional and self-directed accounts are maxed out.
Tax Benefits of Indexed Universal Life Insurance (IUL) Plans
There are three key tax benefits of IULs. First, you may pay into the policy with pre-tax or after-tax funds. Withdrawals from the policy may be made tax-free if you are under 59 1/2. Such withdrawals are regarded as loans, with your death benefit serving as collateral. Any funds paid out to the beneficiary are also tax-free, including normal benefits upon your passing. This is true regardless of their value.
Ask the Experts at Royal Legal Solutions About Your Retirement Planning Options
Regardless of where you are in the retirement planning process, Royal Legal Solutions an assist you. We have extensive experience educating investors about self-directed investment options. Many of our investor-clients love our Solo 401k information, product, and compliance services. Our Self-Directed IRA services can also be helpful for retirement planning, as the SDIRA is yet another vehicle that allows you to diversify and take total control of your investments. To determine which of the available retirement planning strategies are best for you, consult with one of our experts at Royal Legal Solutions. You may also contact us with any questions you may have about your options.