House Hacking: Eliminate your mortgage or rent.
What is house hacking?
The term, coined by Brandon Turner of BiggerPockets, refers to purchasing a property that will allow you to generate income to cover your mortgage expense, and thus, live for free (or EXTREMELY cheap). Typically, this is done by purchasing a 2-4 unit home, living in one of the units and renting out the remaining units to tenants. This works great if you’re young and have the desire to own a home, but aren’t ready to purchase your “forever home” just yet.
If you already own a single-family home, all hope is not lost. You still have the option (although less appealing) to rent out individual bedrooms if you have extra space. My first property was a 2-unit home, where I rented the downstairs unit to tenants, and also had a roommate who was renting a bedroom upstairs in my ‘unit’ – a true double whammy. This DRASTICALLY increased my ability to save money as I was no longer paying for housing, but rather my housing was generating income, and a decent amount.
A common argument against house-hacking is “I wouldn’t want to live with tenants on the same property”. I understand the concern, but have found this one to be unwarranted. I found it actually beneficial having so many other people living in the same home. Need to drop your car off at the shop? No biggie – you’ve got two tenants and a roommate to give you rides. Lock yourself out? Your roommate has a spare key. Need batteries at 11:00 pm a Sunday night?
No worries, give the landlord a call and he’ll bring some downstairs for you (ask me how I know?).
The other main argument about real estate investing in general is the risk. This one is certainly worth some thought, but house-hacking is actually the safest way to own a home. By like, A LOT. Think about it this way. If you buy a single-family home, you (and maybe a spouse) are the ONLY income generating
occupants of that home. In my first house, I had myself, plus my tenants, PLUS my roommate all putting money towards the bills and upkeep associated with that home. If I lost my ability to generate money, I had two other independent sets of occupants who were paying enough to cover the entire mortgage. There is no safer way to purchase a home than by filling it with other people who are giving you money each month to pay your mortgage.
Another massive appeal to this strategy is the extremely low-down payment loan options for owner occupied housing, or primary residences. With typical investment property loans, the borrower needs to come up with anywhere from 20-30% of the purchase price as a down payment. Conversely, utilizing the low-down payment FHA loan program, only 3.5% of the purchase price is required as a down payment. This savings is HUGE if you’re young and don’t have a significant nest egg built up. What other investment can you purchase with only 3.5% down? I’m convinced the small multi-family house-hack is the absolute best way to begin a real estate investing journey.
“If you’re searching for an investor-friendly agent, contact me Ryan Hastings today at 315-219-3116 or ryan@centralnewyork.com to begin, or continue your investing journey.”
