House hacking is a strategy for investing in real estate that involves generating income from your home, while you live in it. This is only limited by your creativity. Buying an owner-occupied investment property and renting out the additional bedrooms and/or units is probably the single most effective hack that a median wage-earner can make to begin moving towards financial freedom rapidly. This can be the beginning of a long-term investment portfolio strategy that can provide passive income or reduce monthly expenses.
Top Strategies
- Buy A Multifamily Home – A 2-4 unit home provides an owner the opportunity to live in one unit while renting out the additional units to one or more tenants. Following first time home buyer guidelines, a new homeowner can begin right away testing the concept of being a landlord. As the landlord, it is up to you to pick your neighbors and create the community that want. Often, the rent that you can charge on the additional units can offset the total payment on your new home and your living expenses can be reduced considerably.
- Offer Short-term rentals – If you don’t own a multifamily home, renting out an unused room can be a great way to reduce your housing expenses. You can advertise for a roommate by word of mouth, at the office or on Airbnb and Vrbo.
- Get housemates – Friends, co-workers, fellow students, and others can be great housemates. Think about lifestyle compatibility when deciding to invite someone to share living space with. It is important to carefully screen any potential live in housemate.
- Build an Accessory Dwelling Unit (ADU) on your property – An additional structure on your property can provide a great source of cash flow. Weather you live in the ADU, or your tenant does, this option provides the independence of living separately. You can convert a garage, basement with a separate entrance or a detached unit to develop a steady stream of income.
- Provide Rental Space on your Property – If you purchase or own a home with some land around it, you can offer to rent out a barn, extra garage, or simply a flat useable storage yard. Tenants can store boats, RVs, or equipment for a fee. Make sure that you are not violating any local zoning restrictions and of course double check with the HOA if applicable.
For all of the above options, make sure that you become familiar with both HOA rules and applicable laws in your city to avoid fines and restrictions.
How To Make It All Happen
- Understand financing options – Here is where StreicherTeam can help. There are several common options for financing a primary residence to use for house hacking: FHA, VA, and Conventional loans all offer down payment options for 5% down or less. StreicherTeam can help you evaluate the options that best suit your needs and qualifications. One of the key benefits of this plan is that you are able to leverage your owner occupied status, to invest in income generating properties. Traditionally, when and investor wants to purchase an investment property, they are required to put 20% down or more.
- Start House Hunting with House Hacking in Mind – it is important to think about how you will use the property and what your tolerance is for sharing common space with tenants. If you want more privacy, it will be important to have separation between you and your tenants. Consider where you purchase and if the property that you are looking at will be attractive to someone other than yourself.
- Crunch the numbers, make a plan and prepare for the unexpected – It is important to know both sides of the equation: 1) What your monthly cash outflow will be and 2) what potential revenue you can expect. Even though you may have a good idea of what you can charge your tenant, don’t forget to factor in the possibility of a vacancy. If a housemate or tenant vacates your property, there may be a period of time when you are not collecting rent. Prepare for this, and don’t let this sink you.