House hacking is often considered as a viable option in real estate investment. In case you don’t know it, real estate investments can come in various ways. Some people may go with rental properties, while others prefer the REITs. Some may choose flipping houses.
Naturally, each way has its own perks and downsides, so read on to understand better about house hacking, and whether it’s the appropriate one for you.
House Hacking Concept
House hacking refers to a strategy where you make use of your main property or residence in order to get rental income. In general, it means that you rent out a portion of your house (or a unit of it) while living in another area. Let’s say that you buy a two-story house (or a duplex).
You live in the first floor while you rent out the second floor to another. That’s house hacking. Or you probably buy a rather big house having 5 rooms. You rent out the four rooms while living in one room. That’s also a house hacking method.
In most cases, people would buy a multifamily property to do the house hacking system. A multifamily property is basically a (residential) property that has more than a housing unit. A duplex, an apartment complex, or a townhome are included in that case.
House Hack vs Rental Property
So, what’s the difference between a house hack and a rental property? First of all, the property used for the rent is different. In rental property, you live in YOUR own house, but having another property (a house, a building, etc) that you rent out to others; either for commercial purpose or residential purpose.
In house hacking, on the other hand, you use your OWN house as a mean to get extra cash. You still live in that house, while renting out the extra space to others.
Second, how you deal with everything is also different. In having a rental property, you can earn passive income while living separately from your tenants. You are basically making money from your property. In house hacking, however, you will have share living space with your tenants; interacting with them 24/7.
Moreover, the earning from the house hacking is typically going to property taxes, (monthly) mortgage payments, and other housing expenses. In the event you aren’t making extra money from this scheme, you can still enjoy the benefits of having reduced housing costs.
Let’s not forget that monthly housing costs are the biggest expenses that homeowners make on a monthly basis.
Should You House Hacking?
House hacking can your first step in real estate investment, especially if you don’t have extra money to space. In house flipping, for instance, you are required to have extra budgets to buy the property. In wholesaling, you may not have to buy anything, but you are getting into a contract with the seller, and it can be risky.
In house hacking, you simply make use of the available property. Let’s say you buy a three bedroom house, and you have a monthly mortgage of $1,500 a month. If you rent two rooms to your friends, where they pay $750 for each, you won’t have to worry about monthly mortgage anymore. Plus, you can build equity along the way.
But you should know that house hacking isn’t for everyone. First of all, there’s a matter of privacy. You will be sharing space with others, which means that you will meet them often on a daily basis. Second, you will have to do the screening and sorting out seriously. Imagine if one of them is a trouble-maker. Living with them would be hellish.
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House Hacking Ideas
If you like the idea about making a house hack a part of your investment life, there are some ideas that you can consider.
- Purchase a multifamily house. In today’s modern day, attached houses may not be a popular option. However, it doesn’t mean that you can’t find houses for multi families. Consider buying a duplex or even triplex, or townhouse, if you want to start out in your investment journey.
- Build ADU (Accessory Dwelling Unit). Having separating living units can be handy, and people often call them in-law apartments, teenager suites, or granny flats. Houses having separate entrance basement or a detached garage can be converted to rental units. It’s even possible for the homeowners to move into those spaces, renting the main house out. If you have a house with a detached or separate unit, you can consider converting them into a livable living unit.
- Offer rooms for short term rentals. If you buy a house with more rooms than you need, then consider renting them out, such as Airbnb. Of course, the options are quite many and you have the options to rent the rooms for longer term or short term.
Final Words
Starting out in real estate investment isn’t difficult as long as you are creative and smart. You can always make use what’s available, such as your house. Think carefully and thoroughly whether house hacking would be the right option for your investment journey.
