Deidre Woollard: Hello, I'm Deidre Woollard, an editor at Millionacres. Thank you so much for tuning into the Millionacres Podcast, we're back to talking about house hacking today. I keep coming back to this strategy because I've seen it work for so many investors and friends of mine. Our guide on this journey today is Andrew Kerr. He gave up life in the corporate world for non-profits, then discovered real estate was a key to financial freedom, which is I think something that we're all looking for. He's bought and sold properties, syndicated deals, and he's just had a wide variety of real estate experiences and he's seen it all. Welcome, Andrew.
Andrew Kerr: Thanks for having me on. I'm excited.
Deidre Woollard: Awesome. Well, let's start with the story of your first house hack.
Andrew Kerr: I didn't even know it was house hacking at the time. I took this unusual route of not going to college, I ended up in mortgage banking and I was doing loans for folks. All of a sudden I realized me and my buddy are getting ready to go rent an apartment together. Our rent was going to be more than mortgage payments that I was seeing other people get, and I said this just doesn't really make a lot of sense. Let me go buy a place then my buddy can rent from me, and now I'm living really cheaply, he's helping covering my costs, and all the other benefits of owning real estate, like the equity growth, from appreciation, and pay down. This was at 20 years old in 2002. A lot of big websites weren't even around yet. I don't even think house hacking was really a term at that point, but it's really just by accident, not something that was super intentional. Just this idea of, this is seems like a cheaper better option that will be good for me long-term financially versus renting.
Deidre Woollard: What market was that in?
Andrew Kerr: Raleigh-Durham, in North Carolina.
Deidre Woollard: Nice. You were 20 years old. How hard was it for you to get a loan?
Andrew Kerr: It was actually pretty easy being that I worked for a Mortgage Company.
Deidre Woollard: Well, that does help. [laughs].
Andrew Kerr: My boss just did the loan for me. At that time I was really lucky where I stumbled into it. I did really well, I was making great money. It made it really easy where I knew exactly what the underwriter would look for, for down payment, and for credit, and income, and all of that. It was probably the easiest loan I've ever done.
Deidre Woollard: That brings me to my next question which is on your website. You talk a lot about getting your financial house in order before you start any real estate investing journey. I think that it's such a good lesson. It's so hard for people because they just want to jump in and do it, and they are so excited. What do you think are some basic guidelines that people need to keep in mind before they even consider their first house hack?
Andrew Kerr: I really look at it as real estate as a whole. To do a real estate deal, you need a property, you need some down payment and income, then you need to have some collateral or down payment within. If you can find a great deal but you don't have any money, and you don't have experience and you have the bad credit, it's close to impossible to do a deal. You've got to bring on someone else. When folks want to jump in, I always say, "Look, that's awesome, but take a step back and look at your credit." Are you having enough income to qualify for a loan? Is your credit borderline? Maybe you are a 600 or a 610 score and you need a 620 to qualify, or if you just paid down a credit card for another three months, your credit score is going to be higher, you can get better financing terms. House hacking is great to help get you ahead financially and fix a lot of financial mistakes, but sometimes you just need that one or two little steps before there. For most folks, it's not something that's going to take two or three years to fix your financial house. Most folks can do it in 1-6 months, then go do your house hack, and you're accelerating everything that you're doing.
Deidre Woollard: Excellent. Your first house hack, it was with a friend, so that's not an issue. But I think one of the things that people are most scared about when it comes to house hacking is, "Oh my gosh, I'm going to have a stranger at the other half of the house, or in the basement," or whatever. How do you walk people through that?
Andrew Kerr: There's been so much publicity around house hacking over the past several years. The only negative, I would say, with that publicity is it highlights mostly the roommate style of house hacking where you buy the house and you have multiple roommates. Really that's only good for folks that are in their 20s, or single, or just casually dating and not further along the line. But soon as you start to have a family, or you get serious in a relationship, that roommate style of house hacking just doesn't work. I immediately tell folks that's just one style, there's several other main styles like having that separate income suite, which really got popular from that, I think it was HGTV show, their income property brought that up. Then there's the ADU style of house hacking, then the other really popular one folks know about next to that roommate style is the more traditional small multi-family. Where you live in a duplex and you rent out one unit, you live in yours, or it's a triplex, or the quad. I try to immediately say, look, you got to match the style of house hacking that's best for you, where you're at in your life. Even when you look at the property types, there's so much more beyond that. Are you really outgoing, and maybe Airbnb is your thing. Where you got a lot of turnover, but you can get a higher income, or maybe the mid-term style of tenant, where you rent to travel nurses for three months, or you go with a traditional long-term tenant that stays 12 months or 24 months, or maybe you don't want to deal with tenants at all, so you can outsource it. There's just so many ways to do house hacking to make it fit where you're at in your lifestyle. That's what I usually tell folks to think about first.
Deidre Woollard: I think the one thing that you mentioned there that's really interesting is the travel one, because on our team we have a real estate investor, he has a house in Philadelphia and they call it MEDS and EDS. He had a lot of travel nurses and that turned out to be great midland term tenants. But let's talk a little bit about evictions, because I think that's the thing that makes people just terrified. You've heard some eviction stories, give give me a horror story.
Andrew Kerr: There has been property fires to SWAT teams rating and apartment that I was getting ready to close on. Most of the tenants that I had to evict was when I was investing in C-Class areas. It was affordable housing and the tenants that I was evicting 99 percent of the time, they were tenants that I inherited from a previous landlord, that was a slumlord and didn't actually do any screening or because the property was such garbage, he couldn't get a high-quality tenant. A lot of the buildings that I was buying at that time, you could rent a two bedroom, one bathroom for 400 bucks a month. Mind you, this is like 2009, 2010 when I started branching into affordable housing, but even then, that was so cheap, you can only attract so much of a quality of the tenant. I always help folks. I've got those horror stories, but you can look at A-Class and B-Class properties and not have issues if you do screenings right. But even then when I had those evictions, almost all of them I did on my own, and because I had ironclad leases, I won all of them. There's only one I technically didn't win, actually won, and then they appealed and then we went to the appeal and then I won again and they couldn't appeal anymore. But yeah, if you do the screening right upfront and then you treat your tenants well and you'd be firm and fair, it's really not an issue 99 percent of the time, and then that one percent of the time where it is an issue, just make sure you have ironclad leases and it's not a problem at all.
Deidre Woollard: You mentioned affordable housing. Have you done section 8 or other housing vouchers?
Andrew Kerr: Yeah. I'm actually a big fan of section 8. I don't do it anymore and part of it was our lifestyle change. But it's like house hacking can you can do house hacking for quite a long time, but what you want to do in your 20s could be different in your 30s. But I was a big fan of section 8 because your rent was guaranteed and it was deposited on the the first of the month, and sometimes it even came early and it was guaranteed. But one of the bad things that reps that section 8 gets is that you get garbage tenants, but you, as a landlord, can actually screen the tenants after they're already approved for section 8, so it's not like you automatically have to accept them. Then the other thing is people be like, "The section 8 inspectors that come in in your property every year, there really nitpicky and they're going to make your fix a lot of silly things." Every now and then you'll get a crazy weird inspector that is just overworked, underpaid and he'll complain about something really small. But 99 percent of the stuff that those section 8 inspectors want you to fix is stuff you should be fixing as a good, ethically, morally landlord. I've had folks like, "He may be fix this window and put in an extra smoke detector," and I was like, "Well, your window was cracked and it was leaking air, it should've been fixed. You only had two smoke detectors. You probably should have had a 3rd one over by the bedrooms." To me, that's not him being nitpicky, he is just making sure you have a safe place or you shouldn't get all up and ruffles over that. I think section 8 definitely can get a bad rap.
Deidre Woollard: Yeah, interesting. I feel like that too. I feel like with the new administration, we're going to see more focus on affordable housing and I think there are probably going to be more opportunities. There's already been talks of expanding some of those vouchers just because the need for workforce in the affordable housing is so huge and there just isn't enough supply, whether it's building apartments or smaller apartment buildings, single-family rentals, the supply is just not there right now.
Andrew Kerr: Yes, you have to jump through a couple of more hurdles. You got to fill out some paperwork. I mean, that could definitely be a negative., but the upside is you got that guaranteed rent going into your bank account every month. For most folks, it's like, "Hey, I'll rent a place, maybe it will take me twice as long as it normally would and I got to fill out some extra paperwork. For guaranteed rent, most folks, when I think about it would say, "Hey, that's a fair exchange."
Deidre Woollard: Absolutely. Let's talk a little bit about financing. That's always a hurdle for people. What advice do you give people? Are there programs that you recommend or do you feel like they should checkout at FHA loans or things like that?
Andrew Kerr: Yes. There's a couple of big programs out there. A conventional loan, both Fannie Mae and Freddie Mac have programs for first-time homebuyers or low down payment programs, five or 10 percent or less. Then you've got your FHA loans, so 3.5 percent down. If you're buying a $200,000 property, that seven grand. If you're a veteran or in the military, the VA Loan, buy a house zero percent down, you combine a multi-family property. Then one of the other really great ones is the NACA, N-A-C-A. You have to be at or below the poverty line with your income. You have to go through some first-time homebuyer education programs. There's a couple of extra hurdles there, but they do some zero percent financing. Their rates are actually better than FHA, VA rates, and it's a phenomenal program, but it was designed to specifically get you in that mid-to-lower income folks, help them get into housing. You can buy a multi-family property with a NACA loan as well. I mean, there's some really great options to get in there where you don't have to have perfect credit, you don't have to have huge down-payments either.
Deidre Woollard: Interesting. I haven't heard of that loan, but it sounds fantastic. Is that for anything under four units?
Andrew Kerr: Yeah. With all of those, there are four units or less, small multi-family because I know you know this, but if folks are listening in once you get to a five-unit, it's considered commercial property and there's also other hurdles that you go through there. If you're really looking to do a house hack, you want to look for four units or less so you can get that traditional financing options that has a low down payment.
Deidre Woollard: Totally. Do you feel like for the beginning of house hacker, it's maybe better to try a duplex or something smaller than immediately try for something where you've got multiple tenants.
Andrew Kerr: I always say, what's your personality? What are you up for? Do you mind hustling? Would you rather have your part-time or side hustle be managing three units in a four-unit or delivering pizzas, or doing Uber Eats delivery to make extra income? To me the answer is, learn to be a landlord. Worst-case, you realize it's not for you and you cash out after a year or two. In the best case, you wanted to be a landlord and then you can start to use that experience and the money you save from house hacking to buy that 2nd or 3rd or 4th property or start to scale up your real estate portfolio. It's really where you're at and even if you don't want to manage the properties, you could look at bringing in a property manager. You have to give up obviously some of your income, but there's a lot of folks that would say like, "I just don't want to manage the tenants but I'll higher the property manager and I want to do the three unit or the four unit." There's so many options there. I would say try not to make an excuse because whatever it is that there's a way around it. Like, I don't want to manage the tenants, get a property manager. I don't want to fix a toilet, hire a maintenance person. There are so many options. Other folks, "I can't save for a down payment." I forget what it is, but the average income refund check was like $2,600 a years, where you save that and then save 200 or 300 bucks a month and work a part-time jobs, save another 200 or 300 bucks, at the end of the year, you will have money for a down payment and you can go buy a 200,000 or $300,000 property to house hack and then you eliminate your housing costs and now you're saving 10, 15, 20 grand a year. That's going to help you get ahead even further. There really isn't to me a lot of excuses why you can't house hack. If you've got the will, there's a way to do it.
Deidre Woollard: I love that. Yeah, we've talked with investors before and we've talked about that analysis paralysis, where you look at everything and then you don't do it. You just mentioned another thing that I hear a lot is repairs. Like, "Oh, I don't want to deal with repairs." When you were starting out, do you run repairs? Are you one of those people who started watching all the YouTube videos? We have a member of our team who is learning everything from YouTube right now.
Andrew Kerr: YouTube university, right?
Deidre Woollard: Exactly.
Andrew Kerr: In 2002, YouTube wasn't around quite yet or if it was, it was still in its infancy.
Deidre Woollard: Not the way it is now. [laughs]
Andrew Kerr: Yeah. I was fortunate. I had a phenomenal dad that I felt when I was younger was torture. He made me like learn to change the oil, learn to when I was horsing around with my brother and sister, punched a hole in the wall, when we're climbing on something that fell in, I had to go to Home Depot and buy the stuff with them and go back and watch him learn to patch it. I learned to do a lot of the basic stuff and then as I started scaling up. I was in my late 20s, I had more time than I had money, so I wanted to learn to do it to save on those costs. But now my wife, we're married. We're further along in our life. I don't want to worry about a maintenance request. We outsource everything and we use property management software so tenants can put in the maintenance requests online and it gets automatically directed to maintenance folks. There are so many ways to streamline. But yeah, I started learning how to do a lot of that myself. Partly to save money and partly just to understand it. That way when I did get to the point of outsourcing it. I know someone was trying to quote me too high for something I'd be like, that's only $50 in materials and an hour of labor, you're not going to charge me 800 bucks for that. You should only be charged me 100 or 200 bucks.
Deidre Woollard: It definitely gives you fundamentals for the long run and helps you not get taken advantage of. I think you said something really important there too, which is that time money spectrum. Because when you're young, you may have the time, but not the money. As you get older, maybe you've got more money, but your time is more precious to you. I think part of this journey of real estate investing is always balancing those two things and figuring out, what matters to you in this moment? Is it making more money and using the time or is it the opposite?
Andrew Kerr: Yeah and one of the great things about real estate investing is house hacking is what you do today is not what you have to do tomorrow. I put in all that extra time when I was younger. We did affordable housing, I did college housing. Then that was great for a long time, but then I wanted simpler stuff, so we started to sell that off and invest in syndications which were easier or there's full-time management, there's a sponsor of the deal and all I got to do is read my P&L every month. Then we do a little bit of higher-end development where we'll take a older building and turn it into a higher-end apartment. You can shift what you're doing and how you're investing over time. It doesn't have to be this permanent thing. That's one of the things I always told folks with house hacking is, it's a tool. If you want to use it for two years do it for two years, if you want to house hack for 10 or 15 years, house hack for 10 or 15 years. Pull it out, use that tool as long as you want and then change to something else.
Deidre Woollard: I love that. You mentioned something earlier, I want to zero in on which is ADUs, accessory dwelling units. I'm fascinated by the rise of ADUs. I think it's going to be huge. Part of that is because I used to live in Los Angeles and California is now allowing ADUs and in LA where sometimes have a large enough lot for doing that, It became very popular. What do you recommend for people about ADUs and how can they use those to gain extra income?
Andrew Kerr: The ADU is phenomenal. You're essentially building a duplex, but it's detached. If you want to house hack, multi-family so hot right now trying to find a duplex or triplex or quad can be really tough but there's so many properties out there that have that detached garage building that has space to be converted into apartment in the old garage space or above it or the lot's big enough where you could build up 25-foot by 25-foot building and have a nice accessory dwelling unit. To me that's a phenomenal way to get into house hacking, because you can live in the main building and then rent out that ADU or you're younger and you're in that hustle on the grind phase, build out the ADU live in the ADU, rent out the main house, which is going to bring you more income. Then when you start to get dating and serious and you need more space, flip it, move into the big house and then rent out that ADU. Then once you're older and you have that bruiting teenager that is just horrible to be around, you can stick them out in the ADU or that college kid that wants to come back home. Like this ADU style of house hacking, you could literally be in that same property for 20 years and flip back and forth and how you use it, it's just absolutely phenomenal. But one of the biggest tips I'd really have to give is think about hiring an architect or someone that has design experience with small spaces. A lot of the times you're not going to find an ADU that's 1,000, 1,500, 2,000, square feet. A lot of them are like a one bedroom or a studio, or maybe you'll find a two bedroom but an architect nowadays tends to really think about open spaces, open concept. Designing a 3,000 square-foot home is very different than building or laying out a space that's five or 600 square feet and making it super efficient and maximizing the best use of space. If you do it right and spend a little bit more money on someone that has that design expertise with small spaces, you can have a 500 square foot ADU that feels enormous, but it all takes that design elements in there.
Deidre Woollard: Absolutely. What do you think of some of the modular options that are out there? There's a lot of different manufacturers, now there's a few startups that are doing it. Do you think that's an option for people as well?
Andrew Kerr: It is. I don't know enough about and part of the challenge too is, building and zoning is changing rapidly across the country. When LA just changed it, I think it was awesome because they realized "We're running out of space, there's so much traffic. How can we provide more housing?" It's you have to increase the density and the ADU is the perfect way to do that. I think the modular options can be great. You just got to make sure it's going to be okay in your local area, they're okay with that. One of the other things too is, if it's too trending and too new, not everyone wants to buy it if you go to resell. I'm a little curious how that will work out as well in the end. But I mean, gosh, even if you put 30, 40, 50 grand into a modular ADU and it's all done and up and running, and it only increases your value by 80 percent of that if you've got the property for 10 years and that places bringing in a grand a month. It will more than pay for itself if you don't get that immediate upside value but in most cases you'll probably will. You can build better products in a factory environment than you can out in the open air. That's probably the way we should go with everything, but we'll see how it catches on. I guess I don't really have a firm answer of what's going to happen with it.
Deidre Woollard: Yeah, me neither, it's something I'm studying. But you mentioned zoning and zoning is something I'm fascinated with. I feel like before the pandemic, we had a few cities that decide to up zone, decide to allow multi-family in a lot of areas, stopped a little bit during the pandemic. Now it seems like I'm starting to hear more buzz about zoning for multi-family. Is that something that you're hearing too?
Andrew Kerr: Yeah. It's happening everywhere. I think it goes back to the comment I just made, how do you get more people into a space? You either have to expand out or you have to increase density in its ADUs are a good way to increase the density. Then the other way is multi-family and there's critics on both sides of it. But if you can put two families on a lot, that lets you increase the density and have more housing. If you can put three families or four families on the lot, I think the challenge where a lot of neighborhood critics come in is when you all of a sudden knockdown four properties, four single-family houses and you put in 30 units or 40 units. It can really change the dynamics, the culture, the personality of those neighborhoods. That's something that's happening here in New Orleans where there's a lot of critics over developers coming in and knocking down those four, six, eight properties to put in big buildings. If you can do instead of knockdown a single-family house and put in a duplex or a quad, it gives you more density, but doesn't have that overwhelming effect that larger multi-family apartment building can have.
Like what you are hearing. Get more real estate investing news and advice for a million acres on Instagram @million acres, and on Twitter @millionacres_co.
Christina real estate investors provides an unparalleled opportunity for investors nationwide to participate in curated real estate portfolios in the Westside region of Los Angeles. For more than 40 years, Christina has generated exceptional returns for its investors through a unique strategy and structure focused on tax advantage, wealth preservation, and long-term capital appreciation. By investing with Christina, you will own a direct stake in exceptional properties located in ultra prime submarkets of Los Angeles. Managed by a highly skilled team with a proven track record, Christina underscores its philosophy by co-investing in every offering. Coming soon, Lawrence Taylor, Founder and President of Christina, will speak about the firm's current portfolio offering and ways to invest. For more information, please visit christinala.com. [MUSIC]
Deidre Woollard: Absolutely. Well, this is a great place to take a short break.
Deidre Woollard: I'm back with Andrew Kerr of financial independence by real estate investing. We're talking about building your financial future through house hacking. I noticed that you recommend investing in multiple areas. Why not just buy a bunch of properties in a single location?
Andrew Kerr: That's definitely the way most people start. Part of this I think is this recurring themes coming up for us of as you move through different phases of life, and I think this is one of those you start with a house hack and then maybe you do a 2nd house hack and you turn that 1st one into a rental and you end up with 3, 4, 5 properties in a geographic area. I think the next step is to try to insulate yourself from any potential downfall, and to do that is to start investing in different MSAs geographic areas. I don't know if we're going to ever have another huge giant recession like we had in '07, '08 or how far out it will be, but most likely, what will happen sooner is regional ups and downs. If you've got a really big employer or two in your area, or there's a major setback in a region, that can negatively affect you for years to come. I think once you get past those first two or three steps, start looking at investing in different geographic areas. That's where I got halfway through my 18 years of investing was how can I look to make sure I'm going to be stable for several decades? Where early on in my 20s, I got a hustle, I'm trying to get ahead this week, this month, this year, then it turned into now I'm starting to look a couple of years out, and now it's starting to look at, hey, we're in our 30s, how can we plan for the next 30 or 40 years? I can't predict what's going to happen in 40 years in an area, but what I can say is most likely if I'm invested across six geographic areas that I think are very stable and have a lot of upside, one of them will probably fail for some reason outside of our control, but the others should stay fairly stable. Look at Detroit, it was a huge city. Like 100 square miles was booming for years and then essentially fell apart, and now there has been a resurgence over the past couple of years, parts of downtown are being revitalized. I don't want to have all my properties in what could be a future Detroit.
Deidre Woollard: Well, you started off in Raleigh-Durham, which right now is one of the markets that is one of the hottest in the country. Apple just announced that they're moving there. Even before that, you've got the Research Triangle, there's just been so much activity in that market. When you got beyond Raleigh-Durham, how did you know where to choose next? What was your process like?
Andrew Kerr: I really looked for value-add apartment deals, and that was really my 1st criteria. I was like who do I know in my network that is getting ready to put together a syndication or an apartment deal that has this value-add potential? That was the 1st criteria. Then the 2nd criteria I looked at is how do I feel about that city, that county, that state? Then I started looking at it like, great, is there job growth in the area? Is that state more tenant-friendly? Is it more landlord-friendly? Is there a lot of not only job growth, but what's the education system like? Are people fleeing the state? As much as I love California and being born in California, I'm a little worried about the trend that's been happening in California with a lot of the wealthier folks moving out of it. California is still always going to be California, but that to me would be a trend of, "Hey, I don't know if that'll be good in 10 or 20 years." That's what I looked at. I was like, one, who do I know that's doing deals that I can trust that meet that high value-add criteria? Then I went in once I was presented with those opportunities, is to start to analyze those geographic areas and have a gut feel to pair with some data of do I think this is a good long-term play over the next decade?
Deidre Woollard: Well, that's an interesting question too. Is it deal first or location first? Because I think a lot of people pick location first.
Andrew Kerr: I would generally say location first. Where I was at when I was cashing out of my affordable housing, I was like at this point, I just need deals. If I was looking for someone that I trusted and had experience first, now, if I was looking to do deals on my own, I would definitely look at a geographic area first then start to find the deal. Generally, I would say you look at a geographic area first and then start to go through building that deal flow or deal pipeline to then do deals in those areas. But with where I was at, it was, hey, I just need apartment deals to invest in. Let me find someone that I can trust and then I'll analyze the geographic area if they've got a deal.
Deidre Woollard: When you analyze, for you, does it start with the data, and then do you go there or do you drive around? Do you look at the neighborhoods? What does that whole process feel like for you?
Andrew Kerr: I always look at it as real estate investing as an art and a science. The science side is crunching the data, looking at forecast the numbers, the deal analysis, but when I'm looking at a bigger deal, I look at three things. What's the geographic area? What's the actual property itself? Because you could be in a killer geographic area, but if the property is horrible and the property is in a bad area inside of that good geographic area, you can lose. Then the 3rd thing I analyze is the person putting the deal together, are they trustworthy? Do they have the experience? Do I actually believe that they can execute on their strategy to turn around this property and improve it that's in this great geographic area? You got to have the science side of it and look at all the numbers, the forecasting. Is someone projecting 10 percent rent growth per year? My gut would say, hey, that's probably not going to be possible. You have to have that art side of it. Then that's driving around, looking at the properties, is really where that art side comes in, is this human element of are you going to trust this person? Do you feel good about the area? Where I'm at right now, I like to sleep very well at night and not have the stress and worry of a more riskier property that has a lot of upside potential.
Deidre Woollard: Right now it seems like it's so hard for investors in any market. This residential real estate market is just insane. There's no inventory anywhere. How does someone even get started right now? Is there any hope in any market? Are you seeing anything anywhere that holds promise for people?
Andrew Kerr: Really you got to find the off-market deals. You can still find stuff on the MLS, but if you can go direct to the potential seller, you can get stuff. Then the other thing is you got to be really open and creative. Whether you want to just buy a true investment property or you're going to do a house hack, you got to think to be creative. I would look for the houses that have the lot that's big enough to build an ADU or the property that has the unfinished basement or a walk-up attic that's unfinished that you can turn into an income suite, or look for the hidden potential. The 4th house hack that me and my wife we're living in, it's in a historic part of New Orleans. When we found the property, it was on the MLS. It had been on for about two or three weeks. It had some action. The seller wasn't moving, but when we toured the property, when you go up to the 2nd floor, there was actually attic space, but no one knew how to tap into that attic space without still meeting code. There's about 300 square feet of space in there and I realized, hey, I got an architect friend. I think we can build a shed dormer which gives us clearance height to walk through the one room and get into the attic space within the other room. We're in the middle of renovating that space right now. It's going to cost us about 100 bucks to renovate it and value of property in this area is going about $250 a square foot, so it's this, here's a deal, it can work as a house hack and a rental. I'm being creative to see what potential does the property have that I can unlock that everyone else is missing? Everyone else that walked up to the property said, "There's this little cross space you can go into the attic and you can just store a bunch of junk." I saw it as this is untapped space with a lot of upside potential in it. Again, we'll invest $100 a square foot to build that out. The return on it will be $250 a square foot for that space once it's finished, heated, and cool.
Deidre Woollard: Interesting. Obviously, you started house hacking in your 20s. You're not in your 20s now I'm guessing, and yet you've still kept going with it even though you've tried a ton of other strategies. What is it about it that still brings you back?
Andrew Kerr: There is two things. One is what is it that you value? For me and my wife, it was pre-COVID, we loved to travel. My wife's been to 40 different countries, I've been to 35, 36. We had three international trips planned last year before COVID. For us, we don't need a 5,000 square-foot home. We need something that's comfortable for us and works and has a lot of the creature comforts that's going to make life enjoyable. That was one part of it. The other part was, I started investing when I was really young. Once me and my wife met, we got more serious and we moved to New Orleans. I took this approach when we're building our life together, "Why don't we go buy a property together, but instead of buying the traditional single-family home with space we don't need, why don't we do a house hack." My 3rd house hack was her 1st house hack. That property gave us 8-10 grand a year on income on top of living for free. My wife had the 65 gallon Jacuzzi tub, two bedroom, one bathroom. We had 11 foot ceilings and a historic property. The place we're in now, we're turning that upstairs and attic space into a giant income suite. Her walk-in closets going to be about seven feet wide and almost 17 feet long. We're going to double vanity. For most folks, when they walk through, they'll say like this isn't sacrificing at all. You have three bedroom, three bathroom, fenced-in yard. You're in a historic district, right down the road from the French Quarter, bars, restaurants, everything's nearby you. But our tenant, on the other side, covers our mortgage for us. To me, we wanted to have a nice quality of life and low cost of living so we can go do spend our money on the things that we love. Part of that was I want to keep doing nonprofit work which traditionally just doesn't pay very well. That gives us the ability to still go, fly business class to the Middle East and go to Petra in Jordan and do all the fun stuff that we value.
Deidre Woollard: Tell me a little bit about your non-profit work and how that kind of works with your real estate business as well.
Andrew Kerr: I've always had the approach. When I really started scaling up my real estate investing, I was doing disaster response work. I would be in Haiti or Indonesia, or Philippines, and it wasn't you leave on Monday you come back on Friday type of business travel. We're getting the call Saturday, we're all flying out on Tuesday, and I'm not coming back for two or three months. I, very early on, looked at how could I manage property remotely or do work on property when I was in between the travel and deployments. I always had this, how can I hack this and make it as efficient and streamlined as possible? What systems could I put in place to make it so it's easy to manage if I'm on the other side of the world and keep my housing low? That's how I started, was in disaster response work. After I left mortgage banking, did work in Kenya, and then worked for a big global foundation here in the US for the past several years. Normally, I'll spend 30 hours a week doing nonprofit work. The real estate investing is something that I always try to keep at five hours a week or less. Obviously, if we buy a new project and there's some renovation, you've got extra legwork upfront from negotiating due diligence, getting plans drawn, or getting bids. But we really try to keep it where we can manage our real estate investments in five hours a week or less.
Deidre Woollard: I love that. You've really used real estate to help you get what you want out of life. I think that's an important thing for people to know is that, it doesn't have to take over and that you can use it to get what you want. Is that something you work on with people when your advising them when they first start is to think about their long-term goals in that way?
Andrew Kerr: It is. Having a podcast myself, we always like these headlines like, "This person went from 0-100 properties in 3.5 months." There's a lot of these folks and I did the same thing and it was like, I got to five units, I got to 10, I got to 25. Now I got to keep going. I'm not going to be successful when I'm to 100 units or I got to get to a thousand units. What I realized in 2016 when I just had those 40 units was, I actually don't need the unit count, what I need is the cash flow. We'll try to take this approach with folks like, "Do you actually need to be at a thousand units? Do you want to create this giant business that has tons of employees that you have to manage in?" It's just going to replace whatever job you're working. If that's really what you want, great. But for most folks, they like the idea of real estate investing to give them more free time. We'll try to work with them and say, "Yes, you don't need a hundred units to be successful. You can have five paid-off units and that could replace your job." Where do you actually want to be in the short-term, mid-term, and long-term? For most folks, they get caught in this trap of like I've got to get all these units to be successful and they just end up creating another job for themselves.
Deidre Woollard: Yeah, that's a really good point is that when it starts to become too stressful then nobody is having a good time. This has been fantastic. As we wrap up, I just want to ask you a little bit about the New Orleans market and what you're seeing because you're the first guest that I had from that area and I think it's a really interesting part of the country.
Andrew Kerr: Yeah, it's been a challenging year over the past year where the economy here in New Orleans is driven by tourism so much, a lot of hospitality folks were laid-off, didn't have work. Luckily, the stimulus helped get them by. But now, there is a big issue where as things are reopening small businesses can't get enough people to come back and work for them. They're doing $20 an hour for line cooks. They're doing seven dollar minimum hourly wage for wait staff, bar tenders with a guaranteed $200 minimum per shift. They're doing a lot of stuff to lure folks back into those industries. The housing market has just been absolutely crazy. It just blows my mind what stuff is selling for, where I'm looking at it now it's like, even if I was buying that to live in I wouldn't pay that price. I don't think it's going to stop. There's the shortage of housing. Trying to figure out, do you go with more density. The lumber issue that just happened, with the prices going up, adding another 10, 20, 30 grand to a new construction that's already, I feel, overpriced, is just going to make it even more expensive. It's crazy. I'm shocked the way stuff's been going and it doesn't seem like it's going to be slowing down anytime soon.
Deidre Woollard: Seems like most of the country right now. [laughs] Well, this was fantastic. Thank you so much for your time. A note for listeners, you can learn more about his system at fibyrei.com. Remember you can always email us at email@example.com to share your thoughts or call on your voice line at 844-615-2201 to become part of the show. Stay well, and stay invested. [MUSIC]
Thank you for tuning in to the Millionacres podcast. I hope you like today's show. If you enjoyed this episode, please consider subscribing through your favorite podcast provider. If you have any questions, please feel free to drop us a line at firstname.lastname@example.org. Stay well and stay invested. People on this program may have an interest on the deals, offerings, or services they discuss that Millionacres or the Motley Fool may have a formal recommendation for or against. Always consult a certified tax professional before acting on tax advice, and do not buy or sell assets based solely on what you hear. [MUSIC]