House hacking is the idea of using your primary residence as an investment property. The term is most often used when talking about buying a multi unit property, so a duplex, triplex, or quadruplex. The goal is to live in one of the units and rent out the rest and live for free, or as close to free as possible.
The term is used very loosely, and to me, it just means trying to have all of, or part of, your housing expenses paid for.
Why House Hacking is Great?
I mean, you don't have a housing expense, do you need more?
In case you do, I got you covered. As a general rule they say you shouldn’t spend more than 30% of your income on housing. I'm not quite sure who “they” is but “they” are about to be disappointed. According to the Bureau of Labor Statistics in 2017 the average person spent 37% of their income on housing. I don’t know about you but I can definitely find a better use for that money.
Luckily for me, I do house hack and live for free. You can see the numbers for my house hack here and take a peek at my budget to see how I’m using all the extra money.
But wait, it gets better.
Possible smaller down payment – If you use an FHA (Federal Housing Administration) loan you can put as little as 3.5% down or 0% through a VA (Veterans Affiars) Loan. I used an FHA loan for mine.
Better financing terms - Owner occupants get lower interest rates and more appealing terms than investment properties. This is a huge advantage if you keep the property as a long-term rental after moving out.
Learn how to invest in real estate - House hacking can help you get on the job training for various aspects of real estate investing like, managing rehabs, landlording, screening tenants, etc. Everyone makes mistakes while learning, but it’s easier to recover when you’re on site and personally involved. This helped me to better learn the process and helps when I try and communicate with my property manager on my property out of state.
Easily transition to a rental property – Since you lived there you'll know the property and tenants well and it'll be on a low interest loan for better cashflow.
More units the better – The obvious part is more rental units means more rental income. The hidden advantage is that your first experience with rental properties can impact how you view them. I began with three rental units. One unit has been a consistent problem. Whether it has been roof rats, plumbing, mold, there is always something. The other two have been relatively easy. If I only had the one and it went terribly I may have given up on real estate.
How To Use House Hacking?
Purchase a multiunit home
We touched on this earlier, but this can mean buying a duplex, triplex, or quadruplex. This is your best option if you are trying to grow a real estate portfolio. You can quickly go from 0 units to living in one and renting out the other 3 over night.
Get A Roommate
This may be an obvious one but I still had to put it in here. You can buy a single family house and rent out the rooms for more income. There are various ways to go about finding a roommate, ask friends, family, craigslist, roomiematch.com, roommates.com, etc.
Cities have been cracking down on renting out properties on Airbnb. At the time of this post it is my understanding that if it is your primary residence, and you live there, they don’t have an issue. You should look into your local laws before taking this route.
As your primary residence Air Bnb can be used in two ways. Option one is to rent it out over weekends and stay with family, friends, a significant others or when you are gone on trips. The second option would be to rent out an empty room. Obviously you have to be okay with people coming into your house. I often stay in a rent a room situation when I travel and the people that host say they enjoy meeting new travelers from around the world. Also, with the added cleaning fee you could either be paid to keep your place clean or have a cleaning crew come in every so often.
You Gotta Just Go For It
When it comes to house hacking people can always find an excuse, 'I couldn't do that, my spouse would never', 'We have kids it's not that easy', 'I don't know how to be a landlord'. It ultimately comes down to what you are willing to do and this doesn't have to be a permanent thing.
There is definitely a difference between "can't" and "choose not to". Don't confuse the two.
HELLO AND WELCOME!
I'm Jake, a dude interested in personal finance and travel creating the life I choose.
In 5 years I went from living in a basement with Craigslist roommates to paying off 90k of debt, backpacking 3 continents, getting a house for myself and 5 rental units.
Read my story in the about me section.
All photos on the blog are from my travels
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