It’s 2021, Houses are expensive, rent is expensive, and living with your parents is out of the equation. What if I told you there was a way to get yourself a home without selling your organs or robbing the nearest bank? Don’t believe me? You will
When it comes to expenses, there’s three big ones that tend to tie people down: housing, transportation, and food. But it’s safe to say that housing ranks #1 on that list. If you haven’t noticed, home prices are very high right now. Just to put into perspective, the national association of realtors stated that the median existing home price for all housing types in March was $329,100 up 17.2% from March 2020 at $280,700. In some markets, this percentage is upwards of 20%, and with this drastic increase in home prices, higher rent prices tend to follow.
So I further proved why it’s safe to say that buying and renting a home these days is difficult to justify, especially when apartment complexes are following the same suit, understanding that there’s a very high demand for housing at this given moment.
So what’s the secret formula? How can you avoid overpaying for housing, and finally kickstart the next chapter of your life? Are all the gurus out there who say you can live for free, right at all? Yes, the answer is house hacking.
To put it in the simplest way possible, house hacking is when you purchase a home and rent out portions of the space to generate income that is used to cover your mortgage and other expenses associated with owning a home. If calculated correctly, it will allow you to be a homeowner for free. This also allows you to qualify for tax incentives such as the mortgage interest tax deduction. You can also use FHA financing to put 3-3.5% down, so you can allocate some of your other funds to things at the property that need immediate attention.
What are the other benefits of house hacking you ask? First and foremost, You’re building your own equity instead of someone else’s. Secondly, when you live in the residence while renting out portions of the home, it allows you to avoid higher property taxes and it will oftentimes have lending incentives as owner-occupiers tend to get better financing terms than people who use it solely as an investment property.
You’ll also get your foot in the door of real estate investing, which will most certainly set you up for a financially independent future. Lastly, understand that you don’t have to live in the property forever, you could stay there for 2-4 years, purchase another home, get someone to fill your spot at the first home and pat yourself on the back for having a cash flowing investment property.
Okay, things are starting to make sense but how are you supposed to start? Well, the most important thing you can do is just start, as the majority of people who are watching this video and are gung ho about house hacking won’t even act on it. So let me try to decrease that number a little bit by giving you a few strategies to implement and get started.
Speaking of strategy, before we jump into a few, the best way to be successful in house hacking is by determining and implementing a proper strategy, and with this proper strategy, you need to uphold it all with professionalism, especially when it comes to create a lease agreement, setting a fair monthly rate, and doing your due diligence on your potential applicants to ensure they are exceptional tenants.
One of the most important aspects of house hacking is analyzing a property and seeing if it even has the opportunity to be a good candidate for the job. If you’re someone who doesn’t want to compromise their privacy for money each month, consider taking a look at multi-family properties.
Which route are you going to take? Single family homes, multi-family properties, live and flips or just flat out renting after a year.
This could be a duplex (2 housing units), a triplex (3 housing units), a quadplex, I think you can guess how many units are in there, and of course the number continues upward. But remember, when you’re house hunting, it’s about trying to shave off some of your expenses, so don’t get yourself sold on the prettiest property out there. The downside to purchasing a multi-family property is having to compete with a seasoned investor who can bring cash to the table, so don’t weigh out single family house hacking by any means.
Another thing to look for is multiple bedroom houses, especially if you can’t get your hands on a multi-family property. Like I mentioned before, some seasoned investors might beat you to it, so finding a home with as many bedrooms as possible with reasonable square footage will allow you to make your housing costs much lower.
If a home doesn’t have a lot of bedrooms, but has a finished basement you may be in luck. Oftentimes when basements are finished, walls are put up to create separate living spaces, bathrooms, storage, and even kitchenettes, which would then allow you to have more tenants. That is also true for rooms that could be converted into bedrooms. For example, if the home has a den or a separate dining room that you don’t find yourself using at all, it would be a perfect spot for a bed and a wardrobe storage closet.
Basements are a plus because it creates an adequate living space, and that’s a crucial aspect to keep in mind when searching for a property to house hack, especially if you don’t have the closest relationship with everyone under that one roof.
Some single family homes also have ADU’s or additional dwelling units that would be an in-law suite or a guest house. These are perfect, as it creates a multi-family feel and a sense of privacy. It’s crucial to make sure these additions are permitted so you aren’t faced with fees or forced to remove it.
A lot of times, the people who are just looking to rent a room, may not have transportation, so finding a property that has public transport in close proximity, would also be a plus to get your rooms rented out, if you’re not renting to just friends of course.
And lastly, be sure to keep homeowners Associations in mind, as some don’t allow for non-owner occupancy. I have heard horror stories of people who did all their due diligence for the perfect investment property, purchased it just to find out from looking at the HOA bylaws that they didn’t allow non-owner occupancy. On top of that, some areas don’t allow short term renting, so keep that in mind if you’re deciding to hop into the Airbnb business.
Before I wrap up this blog, I want to know, what kind of house hacker do you want to be?
Drop your choice in the comments below, and feel free to drop some input on why.
Andrew McManamon is a licensed Real Estate Professional in the great state of Michigan. His philosophy to put people first has paved the way to his extraordinary real estate career. Born and raised in Brighton, MI, Andrew acquired a bachelors degree in business management and marketing from Cleary University in Howell, MI. The combination of his experience and education allows him to take a strategic approach towards every transaction and help his clients make more informed and confident decisions.