house hacking

Have you heard the term house hacking before? It seems to be gaining in popularity and talked about among many different real estate investor forums and podcasts. House Hacking is when you buy a home (single family or multi-family) and rent out a portion of this home or units. Examples of house hacking, include:

  • Buying a duplex and renting out one side while living in the other.
  • Buying a home and renting out the bedroom(s).
  • With Airbnb increasing in popularity, renting out a portion of your home or bedroom as a vacation rental can also be considered house hacking.
  • Renting out (short term or long term) a mother-in-law unit.

Unbeknownst to most, some people find themselves doing a version of house hacking and this serves as the first step in their real estate investing adventure. The benefits of doing a house hack vs. a rental are plentiful but some of the big reasons are financial and emotional. First and foremost, when buying a primary residence (which is what you would purchase if you are house hacking because you will live there), you need as little as 3% down with a conventional mortgage or 3.5% down with FHA). The “renter’s” rent would then go to pay a portion or all of your mortgage, allowing you to live mortgage free.

House hacking also allows you to try your hand at being a landlord. Land lording within its self is a business and house hacking can help you set up rudimentary systems on how to maintain your rental and tenant(s) that can be applied to additional rentals. If you find you do not like it, house hacking provides an easy to get out once the tenants lease ends.

My Story.

I purchased my first home when I was 25. it was a 1,600-sq. ft. condo with two full bedrooms and bathrooms. As I started to consider changing careers and moving to Denver, I realized that extra bedroom and bathroom was my biggest asset and a way to make extra money. For 18 months, I rented out the bedroom and bathroom to another young professional woman. It worked out great, especially since she ended up paying my mortgage. Due to New Hampshire’s high property taxes, the only payment that I was responsible for at the time were the taxes. I was able to build up a savings account that made me feel comfortable leaving my corporate job and moving cross country.

Tips and Tricks.

  • Make sure you can afford the mortgage without a renter. There will be vacancies, unforeseen events that come up (such as a pandemic) and/or you may find out that you do not like being a landlord.
  • I am a firm believer that house hacking could be for anyone. However, I think it is incredibly great for single people (a single income source makes it harder to afford a home), anyone looking to offset some of the mortgage payment and/or save funds, anyone considering being a landlord and/or a family that has an ADU or mother-in-law that isn’t being used.
  • Treat the rental agreement like a business, even if it is just a room. Use a lease, do a thorough background and credit check and employment verification.

House hacking has many perks, including, more money in your pocket. Who doesn’t like more money? If you house hacked, what would you use the extra cash for? I may be crazy but I would save it to purchase another rental. 🙂

Liz is  broker and owner of Liz Daigle Realty.

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