House Hacking Explained: How to Save More, Buy Rentals, and Build Financial Freedom

Paula Pant (00:00)

the mistake that a lot of people make when they’re trying to trim their budget is they focus on variable discretionary spending because that is the lowest friction stuff to cut. So not ordering Door Dash.

There’s no friction around ceasing to order Door Dash. You simply delete the app and poof, you’re done. The problem is that’s low-hanging fruit and it’s never going to move the needle. As compared to house hacking, buy a duplex, live in one side, rent out the other, that single move alone, which will substantially reduce or even eliminate your out-of-pocket housing costs, that’s a move that could save you

$1,500, $2,000, $2,500 a month rather than the $200 that you might save by deleting Door Dash. So between Door Dash versus Duplex, get the Duplex.

Dylan Silver (00:49)

Yeah.

Hey folks, welcome back to the show. Today’s guest, Paula Pant, is the founder of Afford Anything, a leading personal finance platform focused on financial independence, investing, and intentional living. She’s also the host of the Afford Anything podcast ranked among Apple’s top 50 business podcasts with more than 40 million downloads. And she has become one of the most recognized voices in personal finance and wealth building media. Paula, thanks for joining us today.

Paula Pant (02:51)

Thank you so much for having me here.

Dylan Silver (02:53)

Now, you have built a brand around a phrase, you can afford anything but not everything. Walk us through the genesis of that.

Paula Pant (03:01)

Absolutely. So when I was in my twenties, straight out of college, I really wanted to travel. In fact, going back, if we take the story back a step, when I was in college, I wanted to study abroad. I didn’t have the money to do that. Those programs were 15,000 for a single semester. That was prohibitively expensive ⁓ as a college student. And so I thought about it and I realized I don’t actually want to study. I just want to go abroad. And so I concluded that if I graduate, work for a few years, save up some money,

I could then quit and just travel full time for a little while. And so that’s exactly what I did. I took a job at a print newspaper. I like to joke like, okay, if you’re Gen Z, let me explain what a print newspaper is. But I took a job at a print newspaper. I stayed there for three years. My ending salary at the time that I left that job was $31,000 a year. is inflation adjusted, the equivalent about

of about $40,000 in today’s maybe a little over $42,000, $43,000 in today’s dollars. So I wasn’t making big money, but I was freelancing during the evenings and weekends, saving every single penny of my freelance income. So I was living on my full-time salary, saving everything I earned as a freelancer, did that for three years, amassed $25,000. Once I had that, I quit my job, bought a one-way ticket to Egypt.

And I spent the next two years living out of a backpack, two years and three months, 27 months in total. And ⁓ during that time, I kept hearing my friends say the same thing over and over, which was, I would love to do that, but I can’t afford it. ⁓ That was the consistent refrain. And yet I heard that from people who lived in luxury apartments with stainless steel appliances and floor to ceiling windows. They drove cars that were newer than, you

two, three, four years old, like cars that were less than five years old, they drove, yeah, they drove those cars. They would go to the bars and spend $14 on like a martini, you know? And sure, you can’t do all of that and also try to save up, you know, if you save, if you think about saving 25,000 over the span of three years,

That’s on average $800 a month. If you are in your 20s straight out of college, not with a liberal arts degree from a state school, not making very much, ⁓ yeah, you’re gonna have to make some trade-offs. And that’s what the notion of you can afford anything but not everything is. It’s all about making trade-offs so that you are not forgoing what you want most in favor of what you want now.

Dylan Silver (05:37)

I mean, you’re speaking my language. was living in Santo Domingo, Dominican Republic for seven months until recently. And one of the things that I often heard was something similar, like I would love to go. But you know, how do I leave what I’m currently doing in order to get over there? Walk me through how someone can potentially intentionally downsize. Is there a set process for that? Or is it kind of like burn the the bridges?

Paula Pant (06:52)

I mean, it depends on your current family and life circumstances, but the main thing to remember is that there are three, for the average American, the three biggest expenses are housing, transportation, and food. And so the mistake that a lot of people make when they’re trying to trim their budget is they focus on variable discretionary spending because that is the lowest friction stuff to cut. So not ordering Door Dash.

There’s no friction around ceasing to order Door Dash. You simply delete the app and poof, you’re done. The problem is that’s low-hanging fruit and it’s never going to move the needle. As compared to house hacking, buy a duplex, live in one side, rent out the other, that single move alone, which will substantially reduce or even eliminate your out-of-pocket housing costs, that’s a move that could save you

$1,500, $2,000, $2,500 a month rather than the $200 that you might save by deleting Door Dash. So between Door Dash versus Duplex, get the Duplex.

Dylan Silver (07:54)

Yeah.

One of the things that I imagine ⁓ we share from you having traveled and myself as well is this idea that the price of a apartment or a studio apartment even, that that’s just what you have to pay. So if someone has a lower earning W-2 job and they’re looking at staying in Austin, Texas, or it must be difficult in Manhattan, I don’t think anyone can be lower earning W-2 in Manhattan where you’re at.

Paula Pant (08:25)

Yeah.

Dylan Silver (08:25)

But in some of these other cities, right, and you’re looking at rents, know, 14, 15, 1600, $2,000, right? And you’re thinking, well, that’s just what I have to do because that’s just where the market is. You realize how much of your income is going into rent, especially after tax dollars. those people, it can be a huge percentage of.

Paula Pant (08:41)

Mm-hmm.

Right, exactly. So the single most important thing that I did after I came back from my travels, the single most important financial move that I made was I eliminated my out-of-pocket housing expense, and I did that through house hacking. So I wasn’t just giving a hypothetical example. ⁓ I bought a triplex down payment. I think the down payment was around $27,000 or so.

⁓ So, I couldn’t do it right away as soon as I came back. I needed to like cash up for a while, but I cashed up for a while, bought a triplex. I lived with roommates. So, there were one, two, three, there were five of us living in a three bedroom. ⁓ That was in one of the three units. So, this triplex was a three unit and then two, unit. ⁓ So, I’m sorry. ⁓

a three bedroom and then two one bedrooms, right? So I was living in the three bedroom with a bunch of roommates and then I also rented out both of the one bedrooms and between the income from all of my roommates plus the income from the two one bedrooms, ⁓ I paid zero out of pocket housing costs, right? And so if you think about what that means in terms of the impact that it makes on your life,

Dylan Silver (09:37)

Right.

Yeah.

Paula Pant (10:00)

to not pay any out-of-pocket housing costs. And so I lived there for five years with roommates the whole time ⁓ and also with the other two units rented out. And that, I mean, if you think about not having any out-of-pocket housing costs for five years and the way, especially when you’re young, when you’re in your twenties, the way that that accelerates the rest of your life by virtue of letting you save for the next down payment, by virtue of letting you max out your ⁓ 401k, max out your IRA, do that in your twenties.

⁓ I mean, I can’t name a move that is more powerful than that. And so since then, I’ve amassed seven rental units, all paid off, they’re entirely free and clear. ⁓ You know, I’ve built a business, ⁓ you know, hired a team of employees. ⁓ All of that is really built around the strength of getting my housing costs down to zero in my 20s.

Dylan Silver (10:53)

You know, this idea of ⁓ house hacking, right, I think is common among investors. But at this point, in order to have, you know, the ability to purchase a home, I think for a lot of people, they have to start house hacking. And so I’ve seen this migrate from strictly investors to then everyday people who may not be investor minded, but would like to get into the on-ramp of homeownership.

Paula Pant (11:51)

Exactly. And honestly, that’s how I started. I never intended to be an investor. That came later. But initially, I simply intended to reduce and or eliminate my own out of pocket costs. when I start when I bought that triplex, I wasn’t doing it with the mindset of an investor. I was doing it with the mindset of a saver. And that was my entry into the world of real estate. And if I’d wanted to, I could have stopped there.

I could have said, hey, you know what? Real estate as an investor is not for me, but I’m going to just enjoy having no, having zero out of pocket housing costs and live happily ever after the end. I could have moved, if I wanted to stop living with roommates, I could have moved into one of the one bedrooms, ⁓ right? There are a number of things that I could have done, but it happened that I kind of fell in love with real estate and found it to be addictive and then just kept buying.

Dylan Silver (12:45)

When we talk about falling in love with real estate, sometimes people disassociate the community building aspect and creating affordable housing or multifamily housing or luxury housing. They disassociate that from the returns and some people can just be purely bottom line return focused. For me, I love the idea of being able to solve complex problems. I cut my teeth as a wholesaler and now I’m a realtor. What stood out?

for you and what made you fall in love with the real estate game?

Paula Pant (13:16)

that’s a great question. What do I love about real estate? Partially, I love that it takes a village. is so very like highly interactive. ⁓ You you’re coordinating. I was also briefly like I got an agent’s license and then I realized I didn’t really need one so I let it lapse. ⁓ I have spent a lot of time, briefly tried to like you watch YouTube videos to figure out how to do my own repairs and then I…

realized my time would be far better spent on strategy and acquisition. ⁓ And so I then focused on forming relationships with great contractors. ⁓ But it is such a relationship-driven space, it’s tangible, it’s in-person, it’s analog. We live in a world that is so digital. And the business that I run is entirely digital. ⁓ I’m a podcaster, we teach an online course.

That’s a very, very digital business. spend a lot of time ⁓ looking at a screen. I mean, as you and I are doing right now, Dylan, like, you know, we’re doing this virtually. And it is wonderful to have an outlet where you can make money doing something that is ⁓ physical in the real world. Like real estate investing is a go touch grass kind of ⁓ money making endeavor.

Dylan Silver (14:35)

It’s a contact sport, right? mean, in many ways, especially if you’re starting out, you’re going to have to be talking to people, you’re going to have to be having challenging conversations at times, bringing people together. I remember feeling like, I almost feel like I’m a triage coordinator for these distressed situations and having people come together as much as I am underwriting this deal and trying to find an end buyer for it. ⁓ When you’re

Paula Pant (14:37)

Yeah.

Yeah.

Dylan Silver (15:03)

talking with folks about ⁓ good money habits, does it always at some point transition into, hey, how do I get started real estate investing? Or is that a separate conversation entirely?

Paula Pant (15:55)

So the framework that I use is, and I talk about this on the afford anything podcast, ⁓ it is five pillars, right? And so the acronym is FIRE with two I’s, double I, FIRE, but not FIRE in the financial independence retire early sense of the word. It’s a different take on it, different spin. So it’s financial psychology, increasing your income, investing, real estate and entrepreneurship. So acronym double I, FIRE.

but it’s a very different framework. if you think about similar to the financial independence retire early space, financial independence is the work optionality, that’s having sufficient investments such that you could live off your investments if you wanted to. You don’t have to, but you could. Versus retire early is a…

description, it’s a job description or the lack of a job description, right? It is the cessation of like income producing activity. ⁓ Maybe, I mean, maybe that goes into the semantic of what retirement is, but that’s a different conversation for a different day. Anyway, point is the retire early portion is optional, but the financial independence portion is like really instrumental. And I think that I have that same framework with F double IRE. ⁓ So financial psychology, increasing your income and investing.

And when I say investing in this context, I’m referring to ⁓ market investments, right? Typically in a tax advantaged account. So buying ⁓ index funds like equities, equities and bonds that you hold in a 401k IRA HSA. That’s what I mean in this context. When I talk about investing, mean public markets investing. financial psychology, that’s your money mindset, increasing your income, that duh. And then investing those three.

Components are instrumental and everybody needs them if you want to build a net worth, support your family, retire even at 65 or 70. Everyone needs to be able to take care of those three things. So those three portions, the FII are instrumental. And then the R and E, just like how we retire early is optional, same thing. I see R and E, real estate and entrepreneurship as being optional.

If you choose to go that route, it can greatly accelerate your path. ⁓ It can make you richer than you’ve ever dreamed. It can also make you more stressed than you’ve ever dreamed. ⁓ It can do both. it is a wild ride. Like full contact is a really good way to say it. ⁓ It is a wild ride, but it is immensely gratifying. But it is also optional. If you want to do it, you can do it.

You don’t have to.

Dylan Silver (18:40)

Yeah, I think there’s a spectrum of people’s risk tolerances. And sometimes people view real estate as less risky because they know where their money is, right? It’s in the ground, right? And other times they view it as well more risky because now I have to learn this new skill set. I have to manage it. This is going to be a time drain on me. I don’t want to deal with this. Right. And so they effectively delegate their retirement plan to a money manager or an ⁓ index ⁓ relative account. Right.

And so it’s two different perspectives. Not to say that either one is completely right or completely wrong. It’s just two different risk tolerances. We are coming up on time here. ⁓ Anything that you’d like to mention directly to our audience and then also any new projects that you’re working.

Paula Pant (19:21)

Sure, yeah. We teach a course that’s aimed at beginner rental property investors. So the target market is if you are going from zero to one, we are the people who help you go from zero to one. Or maybe you have one like you’re… We have a lot of students who are like, I’m an accidental landlord. I had a primary residence that I moved out of, but I decided to hold on to it because I’m golden handcuffed into a 3 % mortgage.

I have one rental property, but I didn’t really know what I was doing when I bought it. And now I’d like to learn how to do it the right way. So if you’re going from zero to one, or if you’re going from one to two, that’s who it’s aimed at. ⁓ So it’s called Your First Rental Property. it’s a cohort-based experience, ⁓ but ⁓ we really walk you through it. if you want to learn more about it, affordanything.com slash enroll is where you can learn all about it.

Dylan Silver (20:12)

Paula, thank you so much for joining us today. Thanks for your time.

Paula Pant (20:15)

Of course, thank you.