Househacking in 5 Easy Steps
Househacking is the most accessible entry point into real estate investing.
What Is House Hacking?
Essentially it is making money by renting out part of your home. This means that someone else is paying some or all of your mortgage while you live there for FREE or for a fraction of the cost of ownership. You build equity in the property while someone else foots the bill. Sounds like a pretty good deal, right?
Some options for househacking:
Buy a multifamily (duplex, triplex, or fourplex), live in one unit, rent out the rest
Convert an extra bedroom or bonus space in your house into a separate unit
Build an ADU or tiny house on your property and rent it out
Rent space and utilities to RV, campers, or vans
Pros:
Offset your mortgage, live for FREE
Passive Income
Reduced utility costs
Lower down payment
Tax deductions
Landlord + investing experience
Built-in community
Cons:
People living in your space
Roommate dynamics
Higher utility costs
Parking issues
Dealing with tenants
Noise and mess
Added wear and tear
Unhappy neighbors
Now that you know what you’re getting into, here are the 5 steps to your 1st House Hack:
1. Financing Benefits of House Hacking:
Financing your first home with the intention to use it as a house hack is a way to begin investing in real estate without a lot of cash. Generally your primary residence requires a lower down payment, and offers better interest rates and fees.
The great thing about househacking is that you can finance the property with a conventional loan. If you qualify, FHA and VA loans are options too! In these scenarios, you can purchase your property with as little as 3% down. If you are a veteran or surviving spouse, VA loans require ZERO down payment.
Your lender will be your ultimate guide in communicating WHEN you are eligible to start house shopping and at what PRICE we can offer up to.
One additional thing to discuss with your lender when purchasing a house hack: you can use up to 75% of your projected rental income toward your personal income, however it cannot exceed 30% of total income used to qualify.
2. Search for your House Hack
A househack-worthy property may not always have the same characteristics as your standard single family home.
Here’s what to look for:
Spaces that can be easily separated or have separate entrances
Extra underutilized spaces
garage with plumbing
basement that can be converted
Property with ADU on it
Lots of parking
Flexible zoning
Separate utility meters
3. House Hack Deal Analysis
You’ve found a property that looks like a good fit. Now it’s time to plug in the numbers. Investors always let the data decide.
This is where your team of professionals come in. We help buyers analyze the most important metrics:
cash flow
cash-on-cash return
net operating income
cap rate
We go into the details of these in additional videos and blog posts. The important thing to consider is your overall return on investment. You can do that by having a real estate agent on your team helps you study these numbers.
4. Close on your House Hack
You can expect to pay 2% of the purchase price in closing costs. These are fees paid to escrow, loan points, appraisal fees, title insurance, and prorated taxes + insurance.
Depending on the property you purchase, repair and renovation costs will vary greatly.
Is the house built turn-key and ready to rent?
Or do you need to start construction to make it ready?
Make sure to factor in annual maintenance and capital expenditures so you can afford the upkeep and repairs that come with being a homeowner.
5. Find a Good Renter
Learn local landlord-tenant laws
Market your property with good photos, clear description and rent price
Screen potential tenants via questionnaire, virtual, or in person interview
Run a credit report background check
Collect an application and always call references
Select your tenant and sign a lease
There are online resources and platforms to help you do all of the above, and the right people on your team will help guide you every step of the way!
We all know housing is expensive. Househacking is a way to make it more affordable, and it can be a low risk way to becoming a real estate investor. It can increase your purchasing power, get you into your first home sooner, and give you a headstart on becoming a landlord as you build your wealth along the way!
Does househacking sound like a good fit for you? We are here to get you started and help you every step of the way!
Keep in mind the end goal and benefits of this option:
Homeownership
Use your rents to pay down mortgage
Reduce overall interest paid
Build equity faster
Save and get your next investment property