Picture yourself as a homeowner with someone else assisting in paying your mortgage. For many younger generations, homeownership seems like an unattainable dream. Housing is typically the most significant expense for Americans, and costs are higher than ever.
However, some savvy buyers have found ways to spend less or even live rent-free in their own homes through a practice known as “house hacking.”
Understanding House Hacking
House hacking involves renting out part of a single-family home or units in a multifamily property to offset or eliminate housing costs. It’s a strategy that allows buyers who might otherwise be priced out of the market to achieve homeownership.
In some cases, house hacking can transform a home into an income-producing asset, making it an attractive option for those interested in real estate investing. Unlike owning a traditional investment property, house hacking allows you to live in the property while renting out a portion of it.
If you’re looking to make homeownership more affordable or start your investment journey, house hacking could be a viable starting point.
The Popularity of House Hacking
House hacking has gained popularity as it provides a practical path to homeownership without bearing the full financial burden alone. It’s considered a way to “hack” the housing market by reducing costs and serves as an entry point for many into real estate investing.
The appeal of house hacking has grown steadily in recent years due to skyrocketing housing costs, making it difficult for many to afford a home, especially in expensive cities.
Strategies for House Hacking
House hacking can involve renting out a room, unit, or even unique spaces like a pool or garage. The possibilities are endless, limited only by creativity, zoning laws, and any homeowners association restrictions.
Some common house hacking strategies include:
- Single-family home: Renting out spare bedrooms or converting a basement into a separate living space.
- Multi-family home: Living in one unit of a duplex, triplex, or fourplex while renting out the others.
- Accessory dwelling unit (ADU): Leasing a detached ADU like a backyard cottage or in-law suite.
- Garage conversion: Transforming a garage into a living space or renting it out as a parking spot.
- Live-in flip: Purchasing a fixer-upper, living in it while renovating, and selling it for a profit.
Benefits of House Hacking
House hacking combines the advantages of homeownership with the income potential of rental properties. Some benefits include:
- Generates income: Renting out spaces can cover housing costs, pay off the mortgage, or result in a profit.
- Easier entry into the housing market: House hacking allows access to low-down-payment loan options like FHA and VA loans.
- Lower investment requirements: House hacking requires less upfront cash compared to buying an investment property alone.
- Tax advantages: Homeowners can deduct mortgage interest, property taxes, and other rental-related expenses.
Considerations for House Hacking
Before embarking on a house hacking journey, it’s essential to have a clear goal, understand legal obligations, and establish boundaries. Key considerations include:
- Monthly budget: Calculate your affordability and necessary income to make the investment worthwhile.
- Repairs and improvements: Budget for maintenance, repairs, and upgrades.
- Tenants: Prepare to share living spaces with renters and set clear expectations.
- Legal obligations: Comply with all laws and regulations, including fair housing and lease requirements.
- Investment risk: Understand the potential for vacancies and fluctuations in rental income.
The Future of House Hacking
House hacking can provide additional income, help cover housing expenses, and serve as an entry point into real estate investing. However, careful budgeting and planning are crucial, especially in a high-cost market.
Looking ahead, with the completion of more apartment buildings post-pandemic, attracting tenants may become more challenging. Pricing competitively and adapting to shifting rental demands will be key to success in the evolving real estate landscape.