Start Real Estate Investing with House Hacking!

Do you want to invest in real estate, but have no idea how to start? Have you heard of house hacking? Here’s what you need to know:

House hacking is a real estate strategy of buying and living in a property while generating rental income by renting portions of it out. The goal of house hacking is using the rental income from tenants to help offset the cost of the monthly mortgage payment and homeownership expenses. 

It’s a great way for beginners to get into real estate investing or for experienced investors to add an additional property to their portfolio. You can read a previous post about what I learned after buying my first property here.

The perfect house hack is receiving enough rental income to actually earn cash flow while living for free. Although this generally doesn’t work in expensive markets, it can still be very beneficial. 

Let’s say an early working professional woman rents an apartment for $2,500 a month. She decides that she wants to buy a house in a neighborhood that’s not too far from work and it’s in a popular area for other young professionals. She decides to purchase a property that has a $3,000 monthly mortgage. With 2 additional bedrooms, she decides to rent those out to other working professionals for $1,000 a month each so she earns $2,000 a month in rental income. The three professionals split utilities and internet bills. 

Her original $3,000 monthly mortgage, utilities, and internet that would’ve cost her $3,300 a month. By house hacking, she was able to turn her housing expense to $1,100. From what she was renting, she’s saving $1,400 a month additional a month. That’s still a win! This doesn’t take into account tax deductions, mortgage principal paydown, and appreciation. 

House hacking is an extremely powerful strategy for new investors because if done properly, you can eliminate or significantly reduce your biggest expense, which is the cost of housing. 

A common way to house hack is by buying a single family home and renting out the additional bedrooms. Another way to house hack is to buy a multifamily home, such as a duplex, triplex, or a quadplex, live in one unit and rent out the others.

This can provide a steady stream of income and you get a lot more privacy than you would in a single family house. 

House hacking isn’t all sunshine and rainbows. While successful house hacks can really help you save money and get started in real estate, there are several potential downside:

• Tenant Issues
  • As a landlord, you must deal with issues that arise with tenants or amongst tenants. You could mitigate this by pretending to not be the landlord but an existing tenant who is the landlord’s point of contact. 
• Limited privacy
  • A multifamily property would help you maintain privacy, but as of 2022, multifamily properties are very overpriced due to the surge of investor demand. 
• Maintenance and Repairs
  • You’ll have to pay for maintenance and repairs as any other landlord. You’re responsible for maintaining the property and repairing any damages or appliances not caused by tenants. 
• Financing
  • While purchasing a primary residence offers better rates, you must qualify for the property without taking into account rental income just like any primary residence. Investment properties take into account the expected rental income to qualify. 
• Vacancy
  • You’ll eventually have some vacancy when first renting out your newly purchased home or after a tenant leaves. That means zero or partial rental income. You should be prepared for when that happens. 

House hacking has become a popular strategy. It allows someone to purchase a property and generate rental income while reducing their housing expense and investing in real estate. It’s important to research your options and to run the numbers correctly. You can book a consultation with me here if you want to learn how to do that.