Are you someone who is tired of renting? Sick of overbearing landlords and having your rent raised every year? Or maybe you’re a homeowner who feels burdened by a mortgage? Who wants to build wealth while still owning your own property?
If you answered “yes” to any of these questions, then you need to learn about house hacking. House hacking is a real estate strategy that can help you build wealth without sacrificing the lifestyle you deserve. And anyone can do it, from millennials to baby boomers.
What is House Hacking?
House hacking is a real estate strategy where the cost of your home (mortgage, insurance, and maintenance) is subsidized or fully covered by renters. House hacking covers a multitude of scenarios.
For example, it can mean buying a single family home and charging rent for long-term roommates or short-term rentals. Or, you can house hack by buying a small multi-unit property instead of a single-family home. House hackers who buy duplexes or triplexes can live in one unit and rent out the others. And finally, other house hackers – especially those who love a little DIY – buy multi-unit zoned properties and build out creative uses of space, like an apartment over a garage.
The main reason to look into house hacking is that the income from the rental units can cover a significant amount, if not all, of your own personal living expenses. There are both short- and long-term advantages to that additional rent income.
First of all, it makes home buying more affordable and gives you more financial support to reach other milestones. Secondly, you can move out of your property later on and have a source of long-term income that’s much more passive than, say, a traditional full-time job.
What’s So Great About House Hacking?
There are lots of benefits to house hacking, both from a financial perspective and a lifestyle perspective. House hacking experts say a few of the benefits include:
Reduction in Housing Costs
For most people, housing is the largest part of their monthly budget. House hacking immediately reduces or even eliminates your housing costs through the additional rent you receive. That gives you more flexibility in your budget for other priorities, like saving for retirement, investing, paying off student loans, or anything else you can dream up.
Better Financing Terms
Single-family homes come with the best type of mortgages on the market. Or, if you plan to occupy a unit of a multi-family property, you qualify for owner occupant financing. Unlike corporate or small business financing, this gives you lower interest rates and better terms. The hidden gem of this benefit is that you can keep the owner-occupied loan in place even if you move out down the road.
Long-Term Investment Strategy
Not many people invest in real estate because of the large costs. House hacking brings together your personal housing and your long-term investment strategy. You can get immediate cash flow while owning the property for as long as you like!
DIY-er Dream Come True
While you can certainly find both single-family and multi-unit properties in excellent condition, house hacking is a great strategy for folks who aren’t scared of a few DIY projects. In fact, if you’ve ever wanted to try flipping houses, house hacking is a less risky way to do it. For example, in a multi-unit property, you can live in the unit that’s in the worst shape, fix it up, and then rent it out to the next tenant at a higher price. Then it’s just rinse and repeat the process through the building.
Is House Hacking Worth It?
The honest answer is that it depends. Like any type of investment, you need to do your research and a bit of math. Generally, to achieve a goal of eliminating your housing payment, you’ll need to do some math about each property. Take into consideration the mortgage, taxes, insurance, and maintenance costs.
Then, do some market research to see what rent prices you can charge for the condition and location of your property. If the property needs any upgrades, make sure that you overestimate the costs for contractors and/or supplies and take into consideration the months where your extra rooms or unit(s) will be unoccupied.
There are generally real estate agents that specialize in multi-unit properties. They will be able to help you with these calculations. But since every situation is different, make sure you consult with experts in your area about your unique needs and expectations before you buy!
But “Landlord” Isn’t My Dream Job…
Being a landlord comes with perks and downsides, just like everything else. But living on-site is your biggest advantage, because it makes the most stressful parts of being a landlord much easier – like being able to keep an eye on your property and ensure your tenants are following the guidelines of their lease. I would also add that although being a “landlord” may not be a dream job, it makes it possible for you to achieve your other dreams. Whether that’s gaining skills to earn your next big promotion at work or becoming debt-free, being a landlord can help you get there.
Can I Try House Hacking As A First-Time Homebuyer?
Absolutely! House hacking is a perfect way to first-time homebuyers to start building wealth through real estate. First-time homebuyers who want to try house hacking may need to spend extra time researching mortgage options and raising funds for a down payment.
When it comes to a mortgage, the key is to find the lowest interest rate possible at a fixed interest rate. While some first-time homebuyers can get by with an adjustable rate, a house hack property has the potential to be a long-term investment. Because of that, a fixed-rate loan will help you keep your ongoing costs predictable.
The next key is to build up a down payment. Most experts recommend a down payment of at least 20% so you can avoid PMI. However, a down payment of 10% or even less can still be enough. Make sure to explore both traditional lenders and more progressive lenders like SoFi before you make your mortgage decision. In a long-term investment like a rental property, having the right mortgage can either make or break your results!
How Can Baby Boomers or Gen Xers Use House Hacking?
There are some really creative ways that all generations are using house hacking. Some of my favorite success stories are from baby boomers who have used house hacking to retire to their dream cities. Folks with college-aged children can use house hacking by proxy. This involves “helping” their adult child buy a multi-unit property in their new city, majorly reducing or even eliminating one of the major costs of sending a kid to school. And even if you don’t want to move your school-aged kids out of the home they know and love, you house hack with a single family property with a little creativity.
Tell Me More About House Hacking a Single-Family Home
There are definitely ways to try out house hacking if you already own a single family home. Make sure you check your city’s zoning laws to see which options you have. Some creative single-family house hacking ideas include:
- Renting out a spare bedroom in your home. You can explore either long-term rental options like adding a roommate, or short-term options like offering your space on Airbnb.
- Turning an existing area of your property into its own independent unit. Examples include an apartment over a garage, a basement apartment, or even a small backyard studio cottage.
- Got a large lot? Explore adding a mobile home or RV to rent.
Ready To Get Started?
Now that you know the basics, it’s time to set your own your way to becoming a house hacker! Here’s what you need to do to get started:
- Take Inventory: take a look at your finances from the perspective of a house hacker. What are your housing costs? What assets do you have for a down payment? Do you have the skills to do some DIY projects, or should you stick to a property that’s move-in ready? These questions will build the foundation for your next steps.
- Find the Best Mortgage: while shopping for properties can be fun, you really need to get your financing in place before you look for properties. Shop around to make sure you get the best options available, and then get pre-approved.
- Know the Market: Find a real estate agent who specializes in multi-unit properties. Use their knowledge to find properties with market values that align with your financial needs.
- Get Out There: This is the step where you take action! Make time to go to open houses and auctions. Finding the right property can take a lot of time, but if you stick to your plan, eventually you’ll find something that can help you achieve your goals.
Now you’re ready, so happy house hacking!
