HOUSE HACKING
There are many ways to invest in real estate. For most, the goal is to cover your expenses while creating additional income. House Hacking is a unique way to do just that. The question is, what is house hacking and how can you use it to create financial freedom in your life?
WHAT IS HOUSE HACKING?
House Housing is purchasing a property to live in while also using a part of the home to generate income. One example would be be renting out portions of the house to cover your mortgage. For instance, you can purchase a single family home and rent each room out for a set monthly rent or create a space for an Airbnb rental. Another option is purchasing a multi family property such as a duplex, triplex or quadplex. We like to call these “Owner-Occupied Multi Family Properties.” It’s owner occupied because you plan to live in it. The idea here would be to purchase a property live in one unit and rent each additional unit out to pay the mortgage which allows you to live for free. In many cases, you can even create additional income each month. House Hacking is a great option for first time investors.
Let’s break down the numbers even more.
HACKING THE NUMBERS
By purchasing a small multifamily property, the rent that your tenants pay each month can cover all of the expenses for the property – and more. For example, if you buy a quadplex (4 total units), live in one unit and rent each of the other units out for $600 a month, you could be making $1800 per month in gross income. If your loan, taxes, insurance, utilities, and other expenses come to just $1200 a month – you would generate $600 a month just to live in the home. Even better- when it comes time to move out into your future home, you can rent that 4th unit out for even more income.
FINANCING YOUR HOUSE HACK
The easiest way to purchase any property is with cash. However, chances are — you are not able to cut a check for hundred’s of thousands of dollars. In this case, you will need to acquire a mortgage. Don’t let that overwhelm you — the process is far more simple than you think and that’s what we are here for.
With any loan, you are going to need to supply a certain amount of money to get the loan, known as the down payment. One plus side to House Hacking is that you will be living in the property which means it will be owner-occupied. Owner-occupied means you will be purchasing the home as a primary property which allows for lower down payment options such as 3.5% or 5% down payment all the way up to 20% or more. **rule of thumb : the larger the down payment the lower the monthly mortgage payment.
The best way to determine which loan suites for your deal is to speak with a qualified mortgage professional at your local bank or credit union. If you need help, we have some amazing recommendations to help you get started.
WHO SHOULD HOUSE HACK?
House Hacking is not for everyone. In fact, it takes hard work and dedication. After all, you are creating steps toward early retirement. A House Hacker should understand they are becoming a landlord. Like owning any property the owner should understand the work it takes to get your property in “rent ready” condition, screen tenants, process payments, pay all monthly expenses and keep the condition of the property maintained. It is HARD WORK! However, it can be a phenomenal way to kickstart your investing and acquire more units in a shorter amount of time. The more units the more passive income you create. House Hacking is best suited for someone who is motivated by the financial freedom it can provide.
MANAGING YOUR HOUSE HACK?
After closing on the purchase of your small multifamily property, you are now a landlord! At this point, it is imperative to learn how to be a landlord – and start running your business like a business – not a hobby. Read a few books on being a good landlord, make friends with local investors that you respect, read blogs that talk about landlording, and don’t stop learning.
Being a landlord is not as difficult as the horror stories you may have heard of – if you follow some very simple guidelines:
Screen your tenants like you would a job applicant. Keep your emotions out of it and look at the facts. For an exhaustive guide on the best way to find awesome tenants, check out The Ultimate Guide to Tenant Screening.
Have a written policy to refer to. Stick to your policy when dealing with tenants.
Outsource things you don’t want to do. If you don’t want to fix toilets – don’t fix toilets. Find handymen, property managers, or others who can handle the aspects of the job you don’t want to do. If you found a great deal when you bought your property (which you should have!) the cash flow can pay for these things.
Treat your business like a business, not a hobby. Set up processes and systems to handle the problems that will arise.
Being a landlord is not always the most fun activity, but by following these simple guidelines the process can be much easier and your problems minimized. There are over twenty million landlords in America, so you are not alone in your journey. If you run into any problems, just ask those who have come before for help and you’ll find most seasoned landlords are more than willing to help.
ADDITIONAL HOUSE HACK NOTES
After living in a house hack property for one year you are able to rent out all units and get re-qualified to repeat the process again
A house hacker should be comfortable paying the entire mortgage assuming the units are vacant. This ensures you do not put yourself in a difficult financial situation if your units ever find themselves empty for a period of time.
All numbers are for example purposes only. For the most accurate information speak with a qualified mortgage professional at your local bank or credit union.
Because you are living in the property the property will be a “primary residence” which allows for lower down payment options. You do NOT have to put 20%+ down. Best to speak with your lender or bank for more options.
We hope you enjoyed this post. Please do not be afraid to comment below or message us via our contact page with any questions you have. We hope this information was clear and simple. If you are interested in learning more or finding House Hacking style properties please let us know, we are here to help. Joshua@SimpleHouseRealEstate.com