It’s a cold Saturday night in Chicago and I’m huddled on the back porch of a three-floor walk-up chatting with a few friends about apartment hunting. In the past year, apartment rents have gone up 4.8% in Chicago and in the hot neighborhoods rents are up 15% year over year. Over the past 4 years, rents are up over 50%. Here’s a deeper analysis of the rents in cities across the United States. It’s insane.
My friend Brian, who recently broke up with his girlfriend, just can’t find a cheap enough place to live in the same neighborhood. “It’s so tough man,” he opens up, exhausted after looking at apartments all day. “I just can’t afford a nice place.” He went on to share that he hadn’t saved any money in the past 2 years because “I get two paychecks a month – my rent paycheck and my student loan paycheck.” It’s a situation so many people are in, but everyone should be saving something – even if it’s just $5 a day.
I’m stoked to talk money with my homies. I’ve had a bit of wine, so I couldn’t help it. “What if you could live rent-free Brian?”
He knows I blog about money, but still looked at me like I’m an idiot.
Can I Really Live Rent Free?
Yes, you can live rent free. Which can make a massive difference for your future net-worth. So many people spend too much money on rent – they get the luxury apartment (hate that phrase) in a hot neighborhood and drop 50% of their take home pay on a place. A majority of those luxury apartments (still hate that phrase) renters are still living paycheck to paycheck. Then they say they don’t have enough money to save. Uh…
Rent is many people’s biggest expense and biggest opportunity to save money. I always recommend trying to optimize your biggest expense first, since it can have the future value of investing that savings can be massive. Seriously, don’t rent an expensive apartment unless you are already investing at least 20% of your income. Pay yourself first by saving at least 20%, then you can spend the rest. If you have enough to rent a nice place have at it.
But if you want to retire early, gain financial independence, reach financial freedom – whatever you want to call it, you gotta keep your living expenses in check.
Save Money on Rent
For a slightly different perspective, we previously covered saving money on rent in this Millennial Money podcast episode.
In 2010 when I was starting my financial independence journey, I decided to downgrade my apartment from $1,500 to $800 a month and invest the difference. The value of every $1 I saved then, using a simple investing strategy, is worth $3.25 today. The total value of the money I saved by downgrading my apartment for one year (while I also saved up to buy my first property), is worth $27,300 today. That’s a ton of saving (that’s still growing btw) and if it compounds annually at 7% (pretty realistic) and I don’t add a single dollar to it – that $27,300 I saved on rent in 2010 will be worth $207,814 in 30 years. I’ll take that over granite counters any day.
But, I was still paying $800 per month. What if you could live rent-free, or even make money from renting? It’s actually possible, and in some cases, pretty easy to live rent free in many cities in the United States (and in some places abroad).
5 Ways to Live Rent Free (or actually make money renting!)
- Rent, Then Sublet for More Money (The Rent Side Hustle)
- Rent a House and Rent Out the Other Rooms
- Buy a House and Pay the Mortgage with Renters (House Hacking)
- Barter For Free Rent (Value Exchange)
1. Rent an Apartment, Then Sublet it for More Money (aka “The Rent Side Hustle”)
While I only did this once for 2 months, it worked like a charm and I made $1,200. Honestly, I wish I’d thought of it sooner. It’s a strategy I highly recommend. The idea is simple – you sublet your apartment for more than you pay for rent and bank the difference. You can even go looking for an apartment with the specific goal of doing this and it makes it easier if it’s another unit in your building or an apartment you are familiar with. Not all buildings or landlord allow this practice (check your contract closely), but a vast majority of the rental contracts I’ve reviewed don’t have restrictions or language about “sublet rental rates”. Yes, they have restrictions on when and how you can sublet, but not on the rental rate that you can charge the subletter. Sometimes, the money is between the lines. ?
The rent side hustle is a lot easier to do if you have a hands-off landlord or live in a neighborhood where you got a really good deal. I recommended this to one of my friends who’s landlord hasn’t increased his rent in 5 years. The property rents have more than doubled in his Chicago neighborhood. Now he sublets it and makes $1,200 a month. As long as his rent check arrives, his landlord doesn’t bother him. This is particularly easy in neighborhoods that have high student turnover or buildings with management companies that are overworked and underpaid (most!).
Another opportunity – look to take over existing leases from your friends or even on Craiglist. When you take over a lease, then you can immediately potentially sublet it for more money. There are tons of deals to be found if you look hard enough. But make sure you do your homework. This is one bonus of rent’s increasing so quickly because if you’ve lived in a neighborhood awhile, you can likely sublet your apartment for quite a bit more than you currently pay. Unless your landlord is super savvy, then find a new landlord 🙂
2. Rent a House, Sign the Lease, Then Rent Out the Other Rooms (and your treehouse?) at a Higher Rate
This is an easy way to live rent-free, as long as you are responsible for paying and collecting the rent. Find a great apartment at a great price, lock it down, then rent it to friends or other people at a higher per room rate than you are paying. If it’s a 3, 4, or 5 bedroom apartment or house it should be pretty easy for you to add $100-$200 to each individual room rate to cover the cost of your own. While this is easier to do when you are renting the other apartment rooms to non-friends, it can work with your friends too, since you can tell them their rent is a bit higher since you are taking on the burden of the lease and making payments. This is likely going on all around you, so if you are young, or you want to live with roommates this is a great option to live rent free.
3. Airbnb Your Extra Rooms, and/or Your Full Apartment When You Travel
This is a no brainer and I know a lot of people who not only live for free, they actually make money on their apartment. But be careful because there can be restrictions on home sharing in your rental agreement, especially if you live in a corporate building. If you have an old school landlord they likely won’t have restrictions, but make sure to check. Also, make sure you save money for taxes since Airbnb income is taxable and I know some people who’ve been burned by the IRS from their Airbnb income. You also want to be extra careful if you are renting out your own rental, since there are limitations on what will be covered with your renter’s insurance (ALWAYS HAVE RENTER’S INSURANCE).
Check out this post written by a friend of mine who makes five figures a month renting on Airbnb.
4. Buy a House With as Little as 5% Down or with an FHA Loan, Then Rent the Rooms to Cover the Cost of the Mortgage (aka “House Hacking”)
Let’s go a whole step further and buy a property, so you can have an investment, make some money renting out rooms, and then also live rent free! Wha? That’s the trifecta. ??? One myth is that you need a 20% down payment. In my opinion, too many people wait until they have a full 20% down payment and miss opportunities to buy into appreciating real estate markets. While it doesn’t always make sense to buy, given the very high rents in most cities, buying might not end up being cheaper. If you are going to live in the same city for a least a few years (check the rent vs. buy calculations using the link below), you could actually make quite a bit of money on the investment. Check out my post on how to best analyze whether you should rent or buy a home in your market.
Note: Stay tuned for an upcoming series of detailed guest posts and podcasts on how to start house hacking.
5. Live at Home or with a Friend and Barter for Free Rent (aka “Value Exchange, Not Freeloading”)
This is actually a lot more common than you might realize. If you have something of value (whether skills or an asset like a car), you can barter it for either discounted, or even free rent. One Millennial Money reader recently emailed me to let me know she lets her roommates use her car and she also cooks for them, in exchange for free rent. You can do the same thing if you decide to move back in with your parents – barter for the privilege of free rent and the opportunity to save and invest your money instead.
Important Tips to Living Rent Free
Some words of caution:
1. Rental income is taxable income, so be careful and make sure you save at least 30% of your rental income for your taxes
2. Always make sure you have renter’s insurance and hunt for insurance that covers the property even if you aren’t saying in it!
3. Read contracts super carefully (yes I know it’s a pain but it’s worth it). Every rental and sublet contract is unique – so make sure you cover your bases and what you are trying to do is legal, based on the agreements.
4. Be cool. Don’t charge your homies a ton of rent if they can’t afford it. Be open with them.
5. If you move back home with your parents, offer to pay rent or do enough chores/add enough value so you don’t take advantage of their goodwill.
How do you live rent free?
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