House Hacking with Ayush Gupta

Transcription – WCI – 287

Intro:
This is the White Coat Investor podcast, where we help those who wear the white coat get a fair shake on Wall Street. We’ve been helping doctors and other high-income professionals stop doing dumb things with their money since 2011.

Dr. Jim Dahle:
This is White Coat Investor podcast number 287 – House Hacking with Ayush Gupta.

Dr. Jim Dahle:
This podcast is sponsored by Bob Bhayani at drdisabilityquotes.com. He is an independent provider of disability insurance planning solutions to the medical community in every state and a long-time White Coat Investor sponsor.

Dr. Jim Dahle:
He specializes in working with residents and fellows early in their careers to set up sound financial and insurance strategies. If you need to review your disability insurance coverage, or if you just need to get this critical insurance in place, contact Bob at drdisabilityquotes.com today. You can email [email protected] or you can call (973) 771-9100.

Dr. Jim Dahle:
All right, our quote of the day today comes from a Boglehead, that goes by RMJ who said “It’s only play money until it’s gone.” I think there’s a lot of truth to that.

Dr. Jim Dahle:
Thanks for what you do. Whether you’re listening to this on your way to work, on your way home, while you’re working in the garden, whatever you do as you listen to podcasts, you’re probably like me in that you have lots of days of work when nobody actually says thanks for what you’re doing.

Dr. Jim Dahle:
And as docs, we tend to be people pleasers. A lot of why we do what we do is because we want to help people and we like to hear thanks and sometimes we don’t. So, if no one’s told you thanks for a while, let me be the one who tells you that.

Dr. Jim Dahle:
What you’re doing is hard, it’s not easy. There’s a lot of liability there. It required a lot of training. That’s partly why it’s a high-income professional job is because it’s hard. Not everybody can do it. And so, thanks for taking the time to go through that training, go through that education, spending your 20s in school instead of out surfing and seeing the world in order to be able to help people the way you do.

Dr. Jim Dahle:
All right. You may or may not have heard, but we’ve got a conference coming up and we are excited about it. This is the Physician Wellness and Financial Literacy Conference. This is WCICON23. This is our fifth one. We’re doing it the same place we did it last year down in Phoenix where it was awesome. The weather was perfect. March in Phoenix, you just can’t beat it. Whether you’re sitting around the pool, whether you are playing pickleball, whether you’re playing golf, whether you’re going to the spa, whatever it is, this facility has got it.

Dr. Jim Dahle:
But more importantly, you also get to go to the best medical conference of the year. It’s divided into wellness stuff for those who are struggling with burnout, trying to figure out how to get this career so you can have career longevity. It’s got material for those who are just getting into the personal finance, who are just joining the White Coat Investor community. It’s got material for those who’ve been in it for 12 years since it started, and are well on their way to financial independence, if not already there.

Dr. Jim Dahle:
In fact, we have a lot of material this year aimed at those about to retire, aimed at those already in retirement. I think those advanced folks are really going to love that stuff this year.

Dr. Jim Dahle:
But this podcast, although we’re recording it in September and October, it is going to run November 3rd. And that means there’s only four days left to the early bird registration. Obviously, I’m recording this in advance. There may not even be any seats left by the time you hear this, if you want to come in person. But if there are, the price goes up in a few days. So, go register as soon as you can. Not only do you make sure you get a seat there, but you also can get that lowest possible price and you can make sure you’re going to be able to stay at the conference hotel before our room block fills. So, lots of reasons to register early. You can do that and you can get more information about it at www.wcievents.com.

Dr. Jim Dahle:
Some great keynote speakers are coming. I’m giving a couple of talks. Christine Benz is going to be there again. She hasn’t been there for an in person conference yet. She spoke at our virtual one in 2021, and I’m looking forward to her really getting the full experience of being mobbed after her talk and having 30 people asking her questions. I think it’s a lot of fun and a great experience for the speakers as well.

Dr. Jim Dahle:
We got some other great keynotes, lots of returning faculty as well as a whole bunch of new people that you’ve never heard before. So, it’s going to be great. Whether you attend in person, whether you attend virtually, whether you do the premium package, whether you do the spouse package, whatever it might be, we want to see you there at WCICON23.

Dr. Jim Dahle:
All right, we got a great interview today. We’re going to talk about house hacking, which is kind of a great way to get started in real estate investing. And so, let’s get our guest on the line.

Dr. Jim Dahle:
Our guest today on the White Coat Investor podcast is Dr. Ayush Gupta, a pediatric emergency physician who is also the founder of mdhousehacking.com. Ayush, welcome to the podcast.

Dr. Ayush Gupta:
Thank you, James. Thanks for having me. I’m super pumped to be over here on the show.

Dr. Jim Dahle:
Before we get into our discussion about house hacking, let’s let the audience get to know you a little bit better. Tell us about your upbringing and particularly how it affected your views on money.

Dr. Ayush Gupta:
Yeah. I’m an immigrant. I’m born in India. I was raised till I was 24 in India. So, growing up very different lifestyle than where I live right now. Going back to the days, till I was 10 years of age, we used to live in a joint family, 25 people in a house with three bathrooms. So, you can imagine how chaotic it would be. Me, my parents, my brother had one room to share.

Dr. Ayush Gupta:
I lived in a very big mindset of scarcity. We were not rich and you got to work hard to achieve it. It’s your friends whose parents are rich. So, a lot of scarcity. Then growing up, I moved into a better space for us, my family and my brother. I did my med school in India.

Dr. Ayush Gupta:
Again, in med school, it was like when you were in high school, you’re like, “What’s next?” When you’re in 10th grade, what’s next? Are you going to go to science or are you going to commerce? It’s one of the things we have to choose in India. And when you are finishing up high school, then what’s next? Are you going to med school? When you’re in med school, what’s next? What residency are you going to do?

Dr. Ayush Gupta:
So, it was always like this. I think the scarcity mindset brought about this “What’s next?” from your parents a lot. Kind of kept me in a bubbly position and the mindset for money. It affected money a lot because you’re coming from a background, not a lot of wealth. So, you look at opportunities in a very scarce way.

Dr. Ayush Gupta:
Then I moved to the US when I was 25 and I’ve been here just over 10 years now. I think in terms of your second part of the question about money, I think definitely affected that a lot growing up in terms of how the parents were, my upbringing was done in India.

Dr. Jim Dahle:
You’ve lived with 25 people in your house before. So, house hacking seems very natural to you, I imagine.

Dr. Ayush Gupta:
I know, right? That was the ultimate house hacking.

Dr. Jim Dahle:
All right. So, where’d you do your residency and your fellowship?

Dr. Ayush Gupta:
Yeah. I trained in New York for my residency at a pediatric residency in New York in Brooklyn. And then I moved to Michigan where I did three years of pediatric emergency medicine fellowship. And now I’m in New Orleans.

Dr. Jim Dahle:
New Orleans now. Okay. All right. Well, tell us a little bit about mdhousehacking.com. I took a brief look at it last night. Is it a business? Is it a hobby blog? What exactly is mdhousehacking.com?

Dr. Ayush Gupta:
Yeah. House hacking has been this great opportunity and great tool to help me create resources and wealth that I never thought existed. I created this website of social media, it’s called MD House Hacking, and it’s basically a resource, a platform for medical professionals who want to get into house hacking.

Dr. Ayush Gupta:
There’s a bunch of tools available over there. You can download calculators and stuff. But I think the main value that I provide over there is to just get on one-on-one calls with people, especially medical professions like residents, PAs, fellows, med students, young physicians who are trying to get out of this rat trace of working into medicine and trying to get into financial freedom. Just talk to them and going through what the process of house hacking looks like, and I think everybody can do it.

Dr. Jim Dahle:
Is this a labor of love or are you charging them for coaching them to do it? How does it work?

Dr. Ayush Gupta:
Right now, it’s all free. At some point I think I’m going to start charging it, but right now it’s a labor of love. I think one thing I’ve realized is the effort of giving, the value in giving to people is a big satisfaction. It helps me work harder towards whatever I’m trying to achieve.

Dr. Ayush Gupta:
So right now, it’s a labor of love. I’m just trying to spread the concept around in our medical professional world, because a lot of us are not trained to learn about finances and businesses. We are all focused towards medicine so much. So, this is more about just creating the awareness with people and showing them that if I can do it, anybody else can do it. And it’s been done for years.

Dr. Jim Dahle:
All right. Well, let’s talk about house hacking. Let’s start with just a definition. Can you define for the audience what is house hacking?

Dr. Ayush Gupta:
Yeah. House hacking is basically, in my mind, the safest real estate investment strategy in which you live in a portion of the house and then you rent out the portion of the house to other people so they can contribute in helping and paying your mortgage.

Dr. Ayush Gupta:
It can be done in various ways. You can live in a one unit building and you can rent out the other units to the other people, or you can live in a single-family house in a bedroom and rent out the other bedrooms to other people. There are different ways to do that, but it’s basically renting out a portion of your space for other people to help you pay some of the mortgage.

Dr. Jim Dahle:
I think the classic way is someone buys a duplex. They live in one half and they rent out the other half. But obviously there’s almost an endless number of variations. If you rent out like an accessory dwelling unit downstairs, this is like a separate apartment or a guest house on the property, do those count as house hacking or are they separate because they’re technically separate dwellings?

Dr. Ayush Gupta:
No, 100% they count as house hacking. I like to define it in three ways to understand, to make the medical professionals understand the medical student way, the resident way, the attending way.

Dr. Ayush Gupta:
The first one is a bigger medical student way in which you buy a single-family house. You have five bedrooms and you rent out four of them and you live in one of them. That’s a way of house hacking.

Dr. Ayush Gupta:
The second one, the resident way, you buy a bigger property like a duplex, like you were saying, a triplex or a fourplex, something like that. And then you live in one of the sides, you rent out the other sides. As a resident, you need that privacy a little more than a med student. So, you get that, but at same time you are getting a portion of your mortgage covered or you even getting cash flow out of it.

Dr. Ayush Gupta:
And the third one, which is an attending style. I’m an attending, I need more space. I don’t want anybody in my privacy. You have this big house and you have an ADU or a guest suite or a grandma suite in the back, and you rent out that to either a long-term, mid-term or short-term tenant. So, all three can be house hacks.

Dr. Jim Dahle:
What do you see as the main benefits of house hacking?

Dr. Ayush Gupta:
So many. Coming from a medical professional point of view, we are always thinking about medicine and medicine all the time. We think about that as our only image.

Dr. Ayush Gupta:
House hacking gives you an opportunity to do other things in life, which is not medicine related, but use the determination and the grit you learned in medicine to develop financial freedom.

Dr. Ayush Gupta:
It’s a safe way to invest. A lot of us into medicine are really worried about our investment. We are very stuck to our money. We don’t want to give it to anybody, but because we think they’re going to spoil it or they’re going to drop it. And it’s because we’ve worked really hard to earn it.

Dr. Ayush Gupta:
House hacking is a very, very safe strategy in which you have to pay rent to live somewhere. Instead of paying rent, you’re paying a mortgage, but most of your mortgage is covered by other people. I think that’s really good.

Dr. Ayush Gupta:
I think what other people can learn from it, especially coming from my experiences, other strategies in life. I didn’t know that I’m going to learn or love finances as much as I do now. I didn’t know I’d love excel sheets as much as I do now.

Dr. Ayush Gupta:
Some people love hospitality a lot. They love Airbnb-ing a part of their property, or they love decorating. And I’ve seen physicians who started to house hack a portion or Airbnb a portion and they love it. They love catering to the guests. They love decorating the place. They have their entire family and kids taking part in those projects. It’s a great family bonding thing as well.

Dr. Ayush Gupta:
It creates a passive stream of income. If you start in residency and you’re doing that by the time you are in fellowship or you are at being an attending, you have that other stream of income coming in.

Dr. Ayush Gupta:
And one of the big things, I think you being an ER doctor, me being pediatric ER as well, is burnout in medicine. I think what helps preventing burnout is having these other streams of income, other sources coming in. House hacking or investment helps with that a lot. Prevents resident burnout, prevent attendings burnout. So, I think lot of benefits overall to it and a very, very low risk strategy to get into real estate investing.

Dr. Jim Dahle:
Yeah. Well, you may be able to have a significant income, but certainly you can reduce your costs of housing. That’s beneficial. You may be living in a nicer place than you could afford on your own. In a market that’s hot where things are really appreciating fast, you now own a bigger, more valuable property that’s appreciating fast and it’s probably leveraged to boot. So, you’re probably making a significant amount of money on the appreciation.

Dr. Jim Dahle:
But let’s talk about some of the risks of house hacking. What do you see as the risks here of doing this?

Dr. Ayush Gupta:
Yeah, great question. I get this a lot. I think two big things, and I can share with examples. “What if I get no tenants?” is one risk that I get and “I have to pay the entire mortgage myself.” And the second thing which is even bigger is “What if the toilet gets clogged in the middle of the night and I’m in the ER or I’m on call for a hospital? How am I going to fix that toilet which is clogged?”

Dr. Ayush Gupta:
Both of them can be offset by great resources and systems when you buy a house hack and you set that up. I don’t know how to unclog a toilet. I don’t know how to work anything. I don’t know how to drill a nail. I probably know how to do that, but I don’t have to do that.

Dr. Jim Dahle:
I got news for you. You pound nails, you don’t drill them. So, I’ll give you a little tip there on what to do with the nail.

Dr. Ayush Gupta:
There you go. So, that explains it to you. I’ve been doing this for three years now and I still don’t know how to do that. So, it’s something that you don’t really have to do it. You screen your tenants. You screen your tenants really well so they’re not going to be messaging you in the middle of the night. If there is something that’s an emergency in the middle of the night, you have a system and processes. You have a handyman or you have a property management company, which is managing that.

Dr. Ayush Gupta:
In terms of finding tenants, there are ways to do that, especially in today’s market. Especially being a physician or a medical student or residents, you have this added benefit of connecting with other people like nurses, travel nurses, med students who are coming for rotations or long-term residents.

Dr. Ayush Gupta:
And easily you can find tenants. It’s a problem of plenty in finding tenants because we all have gone through that and everybody thinks that the physician, when you are renting apart your space, they love it when you are actually showing your space to other people because they think as a physician or a med student, you’re a very reliable person. So, both these clauses that I feel like disadvantages wise are actually not really that bad.

Dr. Jim Dahle:
Now, obviously, when you’re doing what you call the resident model or the attending model, you’ve got some additional security there. But when you’re doing the medical student model, these are roommates, they’re sharing your space. It’s not just about tenant screening, you’re also selecting your roommates.

Dr. Ayush Gupta:
Correct.

Dr. Jim Dahle:
And even if you’re splitting a duplex or if you’re one unit in a fourplex or whatever, or you have someone in your ADU, you may not have a roommate, but you’re choosing your neighbors.

Dr. Ayush Gupta:
Yeah.

Dr. Jim Dahle:
I think a lot of people worry about that. These people that are coming to live in your house, they’ve got access to your food in the fridge. They’ve got your computers in the house. They could steal that or get on it and steal your identity or use your bed or they’re going to dirty your toilet. What do you think about those concerns that people have that keep them from doing house hacking?

Dr. Ayush Gupta:
That’s such a common concern. That’s one of the first things that a medical student resident asks me about that. “What if I’m not home and I’m at work and somebody does that to me? They hack my computer, they look at my mails about how much my mortgage statement is when it’s sent over to my house.”

Dr. Ayush Gupta:
That’s why you screen your roommates really well and you define the roles. You tell them that, “Okay, I’ll be friends with you at other places, but I still am the owner of the property. I’m still the landlord. So, it doesn’t mean that you can do stuff to break the relationship of a landlord and a tenant. You still sign a 12-month lease with them if you’re doing a long-term tenant.”

Dr. Ayush Gupta:
I personally like to tell my tenants that I am the landlord so it creates a very clear transparency among them that I’m the landlord and I’m living in the building which actually makes them be a little more careful. I’ve never seen a party going on in my place with my buildings because I’m living in the building.

Dr. Ayush Gupta:
Same thing goes for that attendings. And then when you write a lease for them, suppose you have a roommate and you writing a lease for them. You just write it. There are no parties allowed. You write in the lease that you don’t use other people’s food and bathrooms and stuff like that. And that’s violation of lease and you can kick them out. And at times if that breach is happening, you can bring it up to that person and be like, “Hey, this is what’s going to happen. This is your lease. You’ve signed it.”

Dr. Ayush Gupta:
Make sure you signed the leads. I think what a lot of people do is, “Hey, that’s my body, so I’m going to just have him as my roommate and pay $750 a month. Helps me off some of the costs.” But it’s so important to have a written document signed. It helps you a lot in the future.

Dr. Ayush Gupta:
And I lived with roommates during residency and fellowship and I didn’t buy a house that time, but I had roommates. But I think it’s the same thing. As a roommate, you choose another roommate who you think you’re going to be compatible with and that person is not going to touch your food in fridge.

Dr. Ayush Gupta:
Yeah, that’s my feedback on it. I think just having a roommate in college, it’s the same way having a roommate while you own the property too.

Dr. Jim Dahle:
You lose a bit of the barrier that you typically have between a landlord and a tenant. It’s a business relationship because sometimes you have to evict these people.

Dr. Ayush Gupta:
Right.

Dr. Jim Dahle:
Do you think it’s harder to evict somebody that’s also your roommate that you see the difficulties they’re going through, why they can’t pay the rent? Do you think that’s emotionally harder to do an eviction?

Dr. Ayush Gupta:
It can be. I won’t lie. It can be if you’re trying to evict somebody who’s your roommate and your friend. But that’s why you have your security deposit. It doesn’t matter, friend or not, you get a security deposit and you tell them, you have to pay the mortgage and you are dependent on that person’s rental income to pay the mortgage.

Dr. Ayush Gupta:
If they know that you are the owner, they also know if you are a co-resident or some somebody like that, that you make so much salary as well because everybody knows how much a resident makes approximately. So, they know that if they’re not paying that $750, $1,000, you can’t afford that market. So, you have to kick them out.

Dr. Ayush Gupta:
It might be challenging, but in a way, I’ve realized with people, especially the tenants that you screen well, when you choose them well, that’s where it all goes down to. How well you’re screening them. If you screen them well, they can understand where you’re coming from.

Dr. Ayush Gupta:
And being transparent has been the best-case scenario for me. I have had to evict tenants before, but those are extremes and I didn’t get to screen them. I think screening your roommates really well can help you, but at the end of it, if they’re not paying your rents, you still have to evict them. It’s a business transaction you have to tell them. You just have to be transparent to them. That helps a lot.

Dr. Jim Dahle:
What about some of the legislative risks? The regulatory risks. For example, in some communities you’re only allowed to have a certain number of adults living in one house or the neighbors get upset because there’s six cars parked on the street out front. How do you manage those?

Dr. Ayush Gupta:
Yeah, you have to look at your local state landlord laws about how you’re getting people in. Most places will allow one to two person per bedroom. So, for example, if you buy a four-bedroom house, they will allow six to eight people to live in it. Most of your neighbors are going to be okay.

Dr. Ayush Gupta:
I live in New Orleans, it’s like a college town, but at the same time, it’s a lot of hospitals around as well. Most people know that if this is a duplex, you’ll have at least four to five people living in it. So, they’re okay with it.

Dr. Ayush Gupta:
As a landlord, if I’m house hacking, I’m owning it and I’m getting people in, just make sure you don’t overdo it. Don’t get greedier.

Dr. Jim Dahle:
You shouldn’t have 25 people living in there like when you were growing up.

Dr. Ayush Gupta:
I know, right? I wish we had the space for all 25 but thank goodness everybody has their own space now. But that was back in the days, it was pretty challenging. But if you are starting out house hacking, I know it can be super attractive that, “Hey, why don’t I have two people in the living room, two people in the bedroom, two people in that bedroom?” You’re going to get 10 people so that instead of just paying off your mortgage and getting a little cash, you want to get $5,000 cash, $10,000 cash. You don’t have to do that because you’re going to get into trouble.

Dr. Ayush Gupta:
So, it’s a great strategy, but you have to be careful not to get over greedy with it. You just do it right and you’re going to be fine to do it again next year or next year and repeat again. And I think in two, three years it just makes you a different person and you have a different bank balance as well.

Dr. Jim Dahle:
Now when you go to rent a property to somebody, you can’t discriminate them based on where they come from or the color of their skin or their gender or their religion or their sexual orientation in most states or whatever. But all that goes out the window, right? When you’re living on the property, you can pretty much discriminate against anybody. How can that be useful or is there a problem with that? What do you think?

Dr. Ayush Gupta:
I think you don’t call it discrimination. I think you’ll get into trouble if you are telling people who come to apply for your house as any of these things that you mentioned in terms of race and gender and color that you don’t want them in your property. You own the property, you choose your tenants, you don’t have to tell the other people why you didn’t choose them.

Dr. Ayush Gupta:
So, that’s where the discrimination stops. They don’t know the person that you chose, why you chose them, whether it was their bank balance, whether it was a credit score, whether it’s the background check. You still should do all these things when you’re screening a tenant. That’s where discrimination goes away.

Dr. Ayush Gupta:
For example, sometimes I have property management companies discriminating a lot more than house hackers. If I am choosing my tenants, I’m way more open to having any kind of applicants and anybody coming, staying in till the time background kind of screens through. But a lot of times you can hear that from property management companies that they’re not taking somebody because of some race or color.

Dr. Ayush Gupta:
I think because you are the owner, you really, really care about that place. You really care about who’s going to stay with you. So, you try to pick the right person for you who’s going to be sleeping in the next room.

Dr. Jim Dahle:
But you could do that. You could make it so the only people that lived in your house with you were straight Catholic women if you wanted to, right?

Dr. Ayush Gupta:
Yeah, you can 100%.

Dr. Jim Dahle:
There are no rules against that if you’re living there.

Dr. Ayush Gupta:
There is no discrimination if somebody who’s non-Catholic male, who’s applying for that place, but you only want Catholic women who is applying to that place. You cannot post it online. That’s discrimination. You cannot post it looking for a Catholic woman, for a roommate like that. I think that can be considered discrimination. But once people come in, you can screen them like that and you can choose.

Dr. Ayush Gupta:
I chose my tenants the way I wanted them to be. Yeah. I wanted young couples who are working and who are going to take care of the property. And that’s how I have all around because it matches my personality as well.

Dr. Jim Dahle:
Yeah. My understanding is with the typical rental, when you’re just the landlord, you can’t post anything like that in your ads and you can’t discriminate against them. I suppose you can kind of do it under the table where people don’t really understand that’s what’s going on. But if someone could prove you discriminated against them because of their race, whatever, they’ve got a case against you.

Dr. Ayush Gupta:
100%.

Dr. Jim Dahle:
But I think if you’re living there, you can put whatever you want in the ad, can’t you? I mean, you could say only young couples or only medical students. I think as long as you’re living on the property, you’re allowed to do all that, right?

Dr. Ayush Gupta:
Yeah, you can. I think the correct wording would be preferable, to go around over there. Preferably medical students or preferably young couple or suited for these kinds of folks. So, you have that category applying and not this broad category and screen people easily. Yeah, that’s what I would do.

Dr. Jim Dahle:
Yeah. Well, you’ve mentioned some screening procedures. Tell us about your application process. You’ve decided you got this bedroom, somebody moved out, you want to bring somebody in to stay in that bedroom. What’s the application process? How do you screen? Walk us through that.

Dr. Ayush Gupta:
Yeah. For me the application process is very broad. I would create a broad net of people that I can get in from. So, for example, as you were saying, I can choose my tenants. I love medical people. I love medical students, I love residents, I love nurses who can come and stay.

Dr. Ayush Gupta:
One of the things that I do, which other people don’t have, is talking to program coordinators. I know program coordinators around in the hospital that I work in and asking them if they know any classes, any residents or med students. Same asking other residents and med students. That’s like me doing active work.

Dr. Ayush Gupta:
Then the other thing you can do is Zillow, Facebook and some other online rental websites. You can post your link over there and then you have a bunch of applications. I use a property management software which deals with all these things. A software, not a company. So, it doesn’t take a lot of my cash flow out. I set the criteria. I said what credit score I want. I said what income I want. I said how many people I want to live over there. And I said those things and the applicants know they can’t apply if they don’t fit that criteria. Once those things are set and they apply, then they get my calendar. And then mutually we decide what time we’re going to meet at the property for them to walk through.

Dr. Ayush Gupta:
Depending on the property or the unit, sometimes I have so many applicants that I just have to have an open house at that point. Last year, this year has been pretty crazy for rentals and people don’t have space to live.

Dr. Jim Dahle:
Do you conduct an auction? You get them all in the room and you auction off the room? How’s that work?

Dr. Ayush Gupta:
Oh, I have had that opportunity, but I’m still a very safe landlord. I want to say. I don’t do that auction part. I’ve had people come in and tell me that “I’m going to pay you $1,000 more than what you’re charging right now.” But that’s a red flag for the people coming in and being like, “I’ll give you six months’ rent.” That’s a red flag.

Dr. Ayush Gupta:
So, I stick to my guns and I’m doing the background checks. Once they’ve walked through and they’re still interested, then you go through this background check. The same property management software can do the background check, credit score check, and you get a couple of reference letters from them. And that’s how you get them in.

Dr. Ayush Gupta:
There are a couple more steps obviously that I’m skipping away, but I think you get great tenants if you just do a little bit of work and I think we have so much advantage. This is for long term tenants though. If you’re doing mid-term tenants, for example, travel nurses. You have something called Furnished Finder you can use. If you’re doing short-term rentals, you’re doing Airbnb and Vrbo. Those are other places where I do find my tenants as well.

Dr. Jim Dahle:
Do you typically call an employer if they’re a resident at the hospital? Do you bother calling the employer?

Dr. Ayush Gupta:
No, not if they are a resident at the hospital. I would not. I’ve actually have two residents and two med students in my house hack right now. I have four units in the building that I’m living in. So, I have two medical couples living upstairs and they just show their hospital contract there at. And it’s a residency contract.

Dr. Ayush Gupta:
And it’s super easy these days to do a background check on people. Facebook has a bunch of stuff. You can Google the names of people and you can actually do a quick background check on people. So, it depends. There are nonmedical people, if I’m getting in, I would definitely call their employers and make sure they’re okay.

Dr. Jim Dahle:
How do you make sure a student has the means to actually pay your lease?

Dr. Ayush Gupta:
Yeah, exactly right. When I first rented out to a student, I was saying the same thing. They sent you their loan information. So, whenever they take a medical student loan, they get a portion of money which is directed towards rental. And I didn’t know that until I saw the paperwork that they sent. And they had an amount that was written over there. And if my rental amount is much lower than that, I know I’m in a good situation with them.

Dr. Ayush Gupta:
Also, the other thing to offset that is to have their parents co-sign on the lease or somebody that’s higher net worth co-signs on leads. And you can do a background check on them. So those are the two methods that I’ve used for getting medical students.

Dr. Jim Dahle:
Let’s hear some house hacking success stories. Can you share some of your own or of other people when things really worked out well?

Dr. Ayush Gupta:
Oh, yeah. Well, I’ll share mine if that’s okay. I started this three years ago. When Covid happened, it changed my mindset completely, and I was going through the same route of attending life and trying to buy a single-family house. Covid happened, everything shut down. I couldn’t do that.

Dr. Ayush Gupta:
So, I think it was a blessing in disguise. I learned a lot, got into education, educating myself about real estate investing and finances. So, what I did was I went out, I bought a house. It was a four-unit building. I bought it for $690,000. I’m very transparent about it, so I’m okay with giving you the numbers. I bought for $690,000 and I did work on each unit as I was living in one. So, I lived in one unit, and I was renovating the other unit. I wasn’t, the contractor was.

Dr. Ayush Gupta:
I was making some money every month, which I was putting towards payment of the mortgage. I literally didn’t have to pay the mortgage ever for that property. Over time, over the next six months, increased the value by one and a half times, and then did the cash out refi, got all the money that I put in the house where there’s down payment, renovations, everything out from it. And now I live in it for free. I make around $1,500 bucks living in it for free.

Dr. Ayush Gupta:
I used to pay $2,300 bucks a month before that to pay for my rents, and now I’m making $1,500. So, I have a spread of $3,800 if you count it that way. I save $2,300 and I make $1,500. And at the same time, I have this amazing property, which is worth a lot. And every month it has been paid down the mortgage, and I don’t pay a single penny of that. It’s my tenants who pay every month for that.

Dr. Ayush Gupta:
So, I’m creating the equity. My debt is being paid off. I used a HELOC, a home equity line of credit for the rest of the amount that I refinance. And I used that money to buy another property. I bought two more properties just because of my first house hack. And I’m under contract with my fourth property, I’m under contract now.

Dr. Ayush Gupta:
When I was starting, the first few months were tough like anything. I tell people, going into med school, when you were doing your first laceration repair, the first stitch, your hands were trembling, your attending was shouting at you. The fellow was like, “This person, they’re never going to survive.”

Dr. Ayush Gupta:
But then 10 years later, once you go to residency, fellowship, or even if you don’t do fellowship residency, and now you’re attending, you’re good at it. You can do a suture in like five seconds.

Dr. Ayush Gupta:
Same thing for investing. You don’t start at 10 out of 10. You start with learning how it is. It was a good learning process, but it’s no more very fast. That’s my success stories.

Dr. Ayush Gupta:
But there’s a bunch of people that I know who Airbnb decided and then moved out and then did it again. Like residents who did one house in a three year period during residency and another house in a three year period during fellowship, and now they’re attending and they’re making $3,000 from those two houses as a passive income completely after paying off the debt service. And they love it.

Dr. Jim Dahle:
That’s pretty awesome that you’re two or three years out of training and you’re already working on your fourth property. So, that’s pretty exciting. How about horror stories? Have you heard any house hacking horror stories? I mean, you’ve been doing this in what’s been a pretty awesome real estate market, let’s be honest. Everything’s going up in value.

Dr. Ayush Gupta:
Yeah.

Dr. Jim Dahle:
Have you heard any horror stories from people that tried to house hack?

Dr. Ayush Gupta:
Yeah, I have. I have. I think it’s less horror stories than wins. I think one of the things is the real estate market of the last three years have been on the upswing. And right now, you start to hear more horror stories. I think the more horror stories you hear about is more the rehab projects, the ones that people only take to value add.

Dr. Ayush Gupta:
And those are the big horror stories that I’ve heard in which you are buying a house, for example, for $400,000 and you think you’re going to spend $50,000 on the rehab, and you think the offer per value is going to be $600,000, but you end up spending $150,000 and after-repair value is $500,000. So, that’s the horror story that I’ve heard in terms of the after-repair value.

Dr. Ayush Gupta:
But at the end of the day, you’re still living in it. You might not have created that equity that you are planning to do. You might not be able to cash out refi, you might not be able to take a HELOC, but you are still cash flowing or you’re still breaking even. So, the worst horror stories are something like this, but even in that, the person who did the work or who’s living over there is living for free or making cash by living over there.

Dr. Ayush Gupta:
That’s why I keep saying it’s such a safe investment strategy that even your worst-case scenario, if you are doing a little bit of due diligence up front, you can offset most of it because you are living in it as compared you have to pay some somewhere, where you live in it, you have to pay for a rental, or a mortgage you have to pay. Once you pay a mortgage and then have some roommates, which is going to offset some of that.

Dr. Jim Dahle:
Historically, most of the time, about two thirds of the time for residents in a three-year residency, they’re actually better off renting, because the place doesn’t appreciate enough to overcome the transaction costs. Do you think if you are house hacking it changes that equation and makes it smart for residents to actually buy?

Dr. Ayush Gupta:
That’s my biggest regret in residency and fellowship. I wished I had house hacked one property in residency and another one in fellowship. And I can give you some numbers, if that works.

Dr. Ayush Gupta:
I agree, a resident should be house hacking and this is why. An average resident makes around $60,000 a year. That’s an average residency salary. It varies 10%, 20% depending on what part, which comes down to around $3,000 a month for their monthly salary.

Dr. Ayush Gupta:
An average resident pays around $1,000 to $1,200 out of that, or $1,500 out of the $3,000. That’s around like 30% to 50% in terms of their monthly income that they pay for rental units. If you think about in a three-year residency program, which most people do, that’s around $40,000.

Dr. Ayush Gupta:
And I can give perspective from New Orleans and Michigan. I was not into looking at houses in New York at all. I’m sure expensive areas are tougher. But if you look at New Orleans, you can go buy a four- or five-bedroom house for $400,000. A single-family house you can easily find in a nice area for $400,000. Your mortgage on that will be around $3,000. You get three roommates. They’re paying off your mortgage for $1,000 a month. They’re paying your rent for mortgage for $1,000, and you are living for free. You save a little bit for your expenses.

Dr. Ayush Gupta:
Now basically what happens is by the time you finish your residency, a three-year residency, you save that $40,000 that you were paying for rent over three years. Your property has been paid down around $20,000 or $30,000 as a resident, because you make less than $150,000, you can write off some of the taxes from depreciation of the houses, which is a great strategy. Any CPA can talk to you about it.

Dr. Ayush Gupta:
And even if the house doesn’t appreciate, 0%, you are coming out $100,000 on top as you finish residency, which is a great strategy because you were paying $40,000 before. And now you have a property, when you leave residency, you rent out the fourth bedroom to somebody too, which is cash flowing $1,000 a month or $12,000 a year.

Dr. Ayush Gupta:
Imagine starting that when you’re attending and you are so far ahead. So, I personally think that the fourth year of med school, if you are finishing up fourth of med school, after you’ve done with all the interviews and your match comes out in somewhere around March, that’s when residents should start thinking about this process or something related to this. Like, how can I do something like this to offset some of my expenses?

Dr. Ayush Gupta:
And as a resident, I remember one time we used to offer a moonlight payment of $500. Everybody used to jump on it. Imagine saving $1,200 a month. It’s a great strategy. It’s something which has been done for years. I think house hacking terminology wasn’t there. I think people were doing it for a long time.

Dr. Jim Dahle:
Yeah, I had a co-resident that was doing this back in 2003. So, it’s not a totally new concept for sure.

Dr. Ayush Gupta:
Yeah. And a lot of residents over here are also doing it. They just don’t know that it’s called house hacking. They live in a place, they have some roommate who’s a transferring med student or a traveling med student, and they help offset some of the mortgage and it’s perfect. It works for them. They like it. I think it’s just the action steps that once you start finishing up your med school and you get into residency, you’re so into medicine all the time and you don’t think about anything else. But just focusing a little bit on some other stuff can exponentially charge your future.

Dr. Jim Dahle:
So, let’s say you’re a resident, you decide you’re going to do this. You walk in and you want to buy this $400,000, $500,000, $600,000 house, and they’re like, “All right. Well, how much do you make?” And you’re like, “I make $55,000.”

Dr. Ayush Gupta:
Yeah.

Dr. Jim Dahle:
That’s a little hard. How do you make sure you qualify for the loan? Because you tell them, “Oh, I’m going to rent out three rooms.” I’m not sure the lender believes you. How do you qualify for that loan?

Dr. Ayush Gupta:
That’s perfect. They’re a few types of loans, which is very helpful for doing that. Not a lot of conventional loans, which is 20% down, who look at your background, like that will help you with financing that. But there are physician’s specific loans.

Dr. Jim Dahle:
And the resident usually doesn’t have the 20% down anyway.

Dr. Ayush Gupta:
Yeah, it doesn’t. So, you want something, like a physician, that’s where the house hacking is such a powerful investment because you can use low down payment for it. You can use 0% if you want to go through a physician loan program and 3.5% if you want to use a FSJ loan program.

Dr. Ayush Gupta:
I think the physician loan is a great, great rate strategy because it doesn’t look at your debt as a resident. It doesn’t look at your medical student debt and a college debt. It doesn’t allow you to pay PMI, which is a mortgage insurance which you have to pay when you’re paying less than 20%. And it looks at your future. It looks at, “Okay, you’re a pediatric resident. This is your future earning on average.” And they think that’s a safe bet to invest in.

Dr. Jim Dahle:
They still look at your income though. They still care about how much the loan is going to be and what your income is, right?

Dr. Ayush Gupta:
They do. They will, they will look at that. And the other thing you can do to offset that is to say that you’re going to be renting the three units for $1,000 each. For example, the example that we used, and they will use 75% of that number as well. So, if you’re saying you’re going to rent the three units for $3,000, they’re going to use 75% of that, the loan broker and be like, “Okay, $2,500 or $2,400 will be covered from that. Can you, with your income of $60,000 afford $600 a month?” And that is generally a yes, even if you’re $55,000, $60,000 salary.

Dr. Ayush Gupta:
So those are things that you can do. And you know what? If none of these things pan out, you have somebody to help you on. Go find an uncle, go find a doctor, go find your parents who are going to be helping you on the mortgage.

Dr. Ayush Gupta:
You are responsible for all the work. You’re responsible for the payments, but have them in doing it. And there’s so many people who are doing this right now. There are so many physicians. Fortunately, for all of us in the last few years, there’s so many physician entrepreneurs who’ve come out, who love to provide value and help residents and have gone into real estate.

Dr. Ayush Gupta:
There are so many people who will help you be a co-actor for these things. Obviously, everybody and anybody will do a background check. Best place is your family. Start with your family. If you cannot have a mortgage lender give you the loan based on your income, have your family sign off on it, and you be the main person on it. Those are ways to offset it.

Dr. Jim Dahle:
All right. Well, short or long-term rentals. Which is the best way to do house hacking? Should you be putting this up on Airbnb and Vrbo or do you think you’re better off getting longer term roommates that are more stable and you don’t have to hassle with? What do you think?

Dr. Ayush Gupta:
I’ve done both now, and I can tell you my perspective. My girlfriend loves short term rental because she loves decorations, she loves hospitality. I love more of the passiveness of the long-term rentals.

Dr. Ayush Gupta:
I think it depends on your personality as a house hacker. If you think, “Oh, I’m going to have friends over sometime and I need those rooms available like once in a month or once in a few months”, then the short term rental would make sense for you. Short term rental is generally more work, however, it more cash flow as well.

Dr. Ayush Gupta:
The same property, which cash flow with three bedroom $3,000, a short-term rental with cash flow on $5,000. It depends. I’m just giving arbitrary numbers, but short term, generally cash flows a lot more. It’s more work as well. But if you set systems and processes, there’s so many short-term rental systems and processes. We have an Airbnb out in the mountains and we barely have to do anything. There’s so many systems and process in place that it can be done very easily, even if you’re working in the hospital. I work in the hospital all the time, but it can be done.

Dr. Ayush Gupta:
So, it depends on your personality. If you want to play it very, very safe, you want a safe net of income coming in, have it very passive, not doing a lot of work, have great tenants in place, consistency, then long term rentals work a lot. But if you feel like you are that person who always are on a go and want to make extra, want to do extra, love hospitality, love decorating, then short-term rental is the way to go as well. But you can set up systems in that as well, so you don’t have to do a lot of work.

Dr. Jim Dahle:
All right. Well, we’re coming to the end of our time. Eventually 30,000 or 40,000 people, mostly docs are going to listen to this podcast. What have we not talked about that you think they should know?

Dr. Ayush Gupta:
House hacking is a strategy. What I want to tell people, if I can, and the things that I’ve learned and I was telling in the start of a podcast about scarcity mindset and about “What next?”

Dr. Ayush Gupta:
We always, as physicians, we keep delaying our work. We keep delaying gratification. I think a lot of times, we have to find that balance of doing stuff now and being a more well-rounded person.

Dr. Ayush Gupta:
Medicine is just one part of your life, and it’s a big part. We’ve worked really hard to get there. We work really hard to be there. But think about other aspects of your life. If I can tell one thing that’s helped me a lot, the most is relationships. Having coaches, having relationship, learn, having mentors. Being a mentor has been great, but finding them, and that’s what I would encourage people to do out there. If you’re a resident, if you’re a med student, if you’re a physician, go try to talk to other people.

Dr. Ayush Gupta:
And most people are happy to talk to you about these kinds of stuff then they’re hiding stuff. They’re happy to guide you, they’re happy to mentor you, they’re happy to tell you other things you can do in your state of the life, which they might have made a mistake that can help you to not make the same mistake.

Dr. Ayush Gupta:
So, create that relationship with other people in life, other folks. And then spend time working on other aspects apart from medicine, relationship, work on your health, fitness. Spend time giving, and become the best of who you are today.

Dr. Jim Dahle:
Awesome. Well, Dr. Ayush Gupta, pediatric emergency physician and founder of mdhousehacking.com. Thanks so much for being on the White Coat Investor podcast.

Dr. Ayush Gupta:
Thanks for having me. I appreciate it.

Dr. Jim Dahle:
All right. I hope you enjoyed that interview as much as I did. House hacking is one of those things that it absolutely works. Is it some additional work? Yes. Is it some additional risk? Yes. Is it a great way to start real estate investing? Yeah. Yeah, it really is.

Dr. Jim Dahle:
And whether you are just using an accessory dwelling unit, whether you are renting out a house or renting out bedrooms, whatever it might be, there’s a surprising amount of wealth and income that may be hidden in that place you’re living.

Dr. Jim Dahle:
This podcast was sponsored by Bob Bhayani at drdisabilityquotes.com. One listener sent us this review about Bob. “Bob has been absolutely terrific to work with. Bob has always quickly and clearly communicated with me by both email and or telephone with responses to my inquiries usually coming the same day. I’ve somewhat of a unique situation and Bob has been able to help explain the implications and underwriting process in a clear and professional manner.

Dr. Jim Dahle:
Contact Bob at drdisabilityquotes.com today. You can email him at [email protected] or you can call him (973) 771-9100 to get disability insurance in place today.

Dr. Jim Dahle:
Don’t forget, if you want to come to the conference, now is the time to register, www.wcievents.com. I’d love to meet you in person. I love the conference. I feed off it. I like to hear your concerns, your challenges, your successes. They help direct the direction of the content for WCI, for the blog, for the newsletters, for the podcast, for the video cast, for the next year. And so, it’s a great opportunity for me to meet a large part of the WCI community all at once. So selfishly, I hope you come to the conference.

Dr. Jim Dahle:
Thanks for those leaving us five-star reviews and telling their friends about the podcast.
Our most recent one comes from Bo_Sizzle who says “Five stars. I can’t say enough good things about this podcast. It is a must listen, and for me, the best tool in the suite of WCI offerings. I tell all my medical coworkers about it and it still amazes me how many have yet to stumble onto it. Keep up the good work Dr. D!”

Dr. Jim Dahle:
Thanks for the great review. I appreciate that Bo_Sizzle.

Dr. Jim Dahle:
All right, we’ve come to the end of another podcast. I hope you enjoyed it. I enjoyed making it. Luckily my technical team has to spend a lot more time on it than I do. But either way, please keep your head up and your shoulders back. You’ve got this, and we can help. We’ll see you next time on the White Coat Investor podcast.

Disclaimer:
The hosts of the White Coat Investor podcast are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.