Is House Hacking the Way into Real Estate Investing?
Find out how financially-savvy people can own houses in expensive markets.
July 8, 2022
3 min read
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We live in a highly expensive real estate market and for many of us, home affordability is out of reach. If you would love to be a homeowner but reality hits otherwise, there’s a relatively easy way to do it without stretching too much on your budget.
BiggerPockets podcast host Brandon Turner coined the modern term ‘house hacking’, but the idea has been around for a long time. It has become increasingly popular in recent times as housing is turning less and less affordable.
What is House Hacking?
House Hacking is a real estate strategy for beginners that means creatively renting out portions of your primary residence to generate income. This income is used to cover the cost of your mortgage and other expenses associated with owning a home. If implemented properly, houseowners can live in expensive neighborhoods without a single expense, and profit from it too!
If you track your monthly expenses, you’ll notice that mortgages and household expenses top the list. By cutting both those huge bills down in a single dramatic move, you can significantly improve your budget and save money for investing or closing your housing loan faster. In exchange for a few material comforts, you can optimally use your house in order to strengthen your finances.
Here are some ways you can save money through House Hacking:
Offsetting your monthly housing expenses with the rental income
Acquiring extra tax write-offs
Saving on commuting expenses as you live in the same house as your tenant
Reducing time spent commuting through traffic
Potentially covering all household bills like car payments, insurance, and maintenance
Smoothly entering the rental business and learning the ropes as a new landlord
House Hacking strategies
A successfully implemented house hack is when maximum value is squeezed out of a single investment, by finding as much space as possible to rent out. This includes multi-family units, extra bedrooms in a single family house, and additional spaces that can be converted into living areas.
Multi-family units If you’re able to find a triplex or a four plex in a good neighborhood known for a higher ratio of owners to tenants, you’ve struck gold. Before investing, analyse the properties you’ve shortlisted to find out which one will incur the lowest expenses. When you’re starting out as a real estate investor, it’s wiser to buy the most sensible property rather than the prettiest property.
Try to look for houses with finished basements that have been converted into living spaces. This will save you a lot of time and effort while preparing your house for tenants. Basements with separate entrances are great for house hacking. If you don’t mind a little inconvenience, you can generate a lot of rental income by living in the basement and renting out the main floor.
Detached houses with multiple bedrooms If you’re considering investing in a detached house, go for one that has more square footage, and therefore the potential for more bedrooms.
Keep in mind that a lot of Home Owner Associations (HOAs) do not allow tenants in their community. Many communities have similar restrictions for short term rentals, like AirBnb. Such areas can limit your house hacking abilities and must be avoided. Other factors you’d need to consider are the usual ones - crime-free neighbourhood, public transportation options, noise. Invest in a property where tenants genuinely would want to live.
If you want to own a house in an expensive market, this is the financially-savvy solution you’ve been looking for. This also applies if you’re an enterprising new investor looking to enter the real estate market without much financial liability. You just have to empower your home to do the job for you!
If you’re a realtor, it’s likely that one thing in short supply is your time. Showings, networking, paperwork, it all adds up. This is why we’ve introduced an easier way for you to screen potential tenants the next time you lease. Here’s an easy three step solution to help you make a more informed decision.