House Hacking: What To Know

These days, everyone and their parents are talking about house hacking. Boiled-down house hacking involves buying a multi-family property, living in one unit, and renting out the others to cover your expenses. This property could be a duplex, triplex, fourplex, or even a single-family house renting out your bedrooms or mother-in-law suite. Many real estate investors start by house hacking. The rent paid by the tenants covers your mortgage while you build equity and live for free.

Why the sudden societal interest in house hacking? Well, most Americans are spending close to 40% of their monthly income on rent, and property costs are incredibly high. In turn, Millennials and Gen-Z have gotten creative with new ways to own property.

The Incentives of House Hacking:

  • Building Wealth
Renting is an expense that disappears from your bank account every month and into your landlord’s pocket. However, if you own the property, the rent money goes towards paying off your mortgage and building equity in what’s yours!
  • The Safe Transition to Real Estate Investing

For an aspiring investor, it’s nearly impossible to own a few doors without some initial capital. However, house hacking is a great way to ease into the practice and is how many savvy investors start.

  • Small Down Payments

The best type of loan for this investment would be an FHA loan. These loans can have an interest rate as low as 5% and down payments as low as 3.5% down compared to a traditional 20% down.

  • The Ability to Own Property in the Most Expensive and Competitive¬†Market to Date

In today’s housing market, it sometimes feels impossible to own a home. House hacking provides the greatest opportunity to get in and, at the same time, have someone else paying your mortgage.

Win / Win.


The Strategies of House Hacking:

Depending on the opportunity and your own goals for that property, there are many different strategies, but I’ll go over some common ones here, so you know what they look like! There is no one-size-fits-all solution here – some of these techniques may work better than others, depending on many factors.

  • House Hacking a Single Family Home

Some choose to house hack a single-family home and rent out the spare rooms to others. This situation would be best as a rent-to-own property. The rent from your tenants will help pay off your mortgage; while you make additional payments to own the property in full sooner. Renting a room in your own house can be a long-term tenant or even an Airbnb destination. Short-term rentals can be very lucrative if you live in a desirable area.

  • Live in and Flip

This strategy is just as it sounds. You buy a property with the intent to live in it for two years and fix it up. The property will appreciate, the money you put in adds value, then sell for profit. This strategy is quite popular because the two-year timeline helps you avoid paying capital gains tax on the first 250K of net proceeds and 500k if you’re married.

  • FHA House Hack

The FHA loans are the perfect way to get started in real estate. With a down payment as low as 3.5%, these mortgages will make it easier for you to purchase multi-family properties with up to four units!

With an FHA Loan, You can purchase a fourplex for $400,000 with only $14,000 down. Rent out the additional units and generate a net income of $3600 per month from renting out the other three units. Your mortgage payment is only $2000, leaving you with an additional $1000 in your pocket.

House hacking is an innovative strategy for real estate investors who want to get into the game early. Of course, you’ve got to have an entrepreneurial spirit, but when done well, you’ll be marking your first step towards generating passive and generational wealth. So what do you think, are you ready?

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