Are you looking to get into real estate investing but don’t have the capital to buy a rental property or a home to flip? House hacking might be your way into the industry.
Real estate investing sounds expensive, and many aspects of it can be. If you are just getting your feet wet you want to start off small with a venture that can generate capital but won’t put you in immediate debt if it fails.
Many investors got their start in the industry by doing something called “house hacking.” This isn’t hacking in the technical sense, you aren’t breaking into anything. It’s more like hacking your gym routine or your productivity. House hacking is a way to simplify your entrance into the real estate industry to make it both cost effective and worthwhile.
So, What House Hacking?
House hacking has been around for years, though it probably hasn’t been called that the whole time. House hacking is simply a strategy where investors rent out a portion of their primary residence. This can mean a multitude of things from renting out your in-law apartment, living in one unit of a multi-unit building you own, renting out a room, listing a room on AirBnB or converting your garage into a living space. Some house hackers even build tiny homes on their property to rent out!
The idea of house hacking is to make money from your primary residence while still living there, getting into real estate investing with little additional money. This strategy is a great way to generate some income to offset your own mortgage and maintenance costs. This is also a great way to get some experience in the industry without making a huge monetary commitment. You can generate cash through this venture that will go towards your next venture without having you straining with every penny.
The Benefits
There are a lot of benefits to house hacking, making it a popular strategy for beginners to real estate investing. If you can stand other people living in your home or being neighbors with your tenants you can get a lot out of house hacking that can stabilize your finances and get you closer to your investing goals.
Less Risky
Because you are leveraging a property you already own and can afford, you are not taking on additional debt. While the goal is always to make money, a period of vacancy won’t put you into financial turmoil. The money you make through house hacking can be used to offset your own housing costs making it easier to save or invest. The decreased risk makes this a very do-able option for just about anyone that owns a home.
Flexible
House hacking is inherently flexible. Because this is your home you have more control over what you do with it. In time you could even move out of the house and rent out the main house as well as the rental unit.
If your house hacking is renting out a room or apartment on a service like AirBnB you can choose which dates your home is occupied, making it easy to control who is coming and going. Just make sure you are always aware of any local ordinances so you don’t violate any bylaws – restrictions and regulations can vary from city to city.
Earn Money & Reduce Housing Costs
The whole point of house hacking is to generate more income and reduce or eliminate existing housing costs. And if you do it well you can do all of those things! Even renting out a single room will generate income that you otherwise wouldn’t.
Different house hacking ventures will yield different results. If you were to buy a multi-unit building and live in one of the units you could easily generate enough income through rent to pay all of your housing expenses. You are a lot less likely to do that by renting out a room or your in-law apartment but you can still significantly reduce your expenses and leave room for saving for bigger investments in the future.
Common Forms of House Hacking
So, you are interested in house hacking – who wouldn’t be! There are many ways you can turn your primary residence into a source of income depending on whether you already own a home or are looking to buy one soon.
Multi-Unit Properties
If you are looking for a primary residence and want to start house hacking a great plan is to look for multi-unit properties. These can be properties with several units or only two. Once you find one in a desirable area you can live in one unit and rent out the rest.
This is the house hacking strategy that will generate the most income and give you lots of experience as a landlord. Living in a unit on-site will eliminate the need to pay a second mortgage and allow you to put all of your energy into one space, and manage the property yourself. Depending on your mortgage and the number of units you have you could easily eliminate all of your housing costs just on rent collection, leaving you plenty of money to save for a future rental property purchase.
If you want to fast track your real estate investing career this is the way to do it. This is the house hacking method that will generate the most income if you can keep your units consistently rented out. This will also allow you to get experience looking for tenants and keeping up with the constant changes in the market and industry.
In-Law Apartments
Does your home have an in-law apartment? Could you easily build one? An in-law apartment is a fantastic way to generate more income from your primary residence. In-law apartments are generally self-sustainable, separate spaces that give you and your renter privacy from each other.
These kinds of spaces are considered additional dwelling units and have full plumbing, electricity and kitchen facilities apart from the main house. If your home has one of these it can easily be rented out to generate additional income. Depending on the size of your in-law apartment you could generate enough in rent to offset most of your mortgage.
Converted Areas
If your home does not have additional space to rent out another option is creating a space in an easily convertible area. This means transforming rooms into bedrooms or small apartments. You can do something like this by finishing the basement or garage and installing plumbing and a kitchenette.
You may not be able to convert enough space in your home to create small apartments but you can always try and add more bedrooms. The more bedrooms your home has the more opportunities you have to rent them out.
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Renting Rooms
If you have a spare bedroom or two you can get in on house hacking by renting them out. This method is a great option but does come with drawbacks because you will have to live with and use the same facilities as your tenant. But if you know your tenant or can vet them properly this can be a great option for additional income. Just be sure to establish boundaries before the tenant moves in to keep everyone comfortable.
Short Term Rentals
If you don’t want to make a long term commitment to having someone on your property you can always rent out units or bedrooms on short term rental sites like AirBnB. These sites allow you to screen renters and set dates that you would be comfortable having someone in your home. This can be a great way to try out house hacking without the commitment. If you find it’s something you do not like you do not have to continue it – you don’t have to wait out the remainder of a lease.
If you live in a desirable area or vacation spot this can be your best option at maximizing the income your home can generate. Having many short term rentals can be much more lucrative than one long term tenant. But you need to make sure the demand is there first! If you live in a town that is packed in the summer but abandoned in the winter you need to run the numbers to figure out which strategy will bring in the most money over the entire year.
Final Thoughts
If you have ever given real estate investing a thought, house hacking is a great way to get into the industry without a ton of financial risk and a lot of flexibility. If you don’t already own a home and are looking for one be sure to lookout for house hacking opportunities. Does it have spare bedrooms? How about an in-law apartment? Does it have multiple units? Being aware of what makes a property “hackable” is a great way to set yourself up for a successful introduction into the world of real estate investing.
