How to House Hack: Real Estate Investing Strategy

Do you feel homeownership is a dream you can’t achieve? Would you wish to begin your path to financial security but don’t know where to start? Begin house hacking.

Housing has increasingly become expensive. The general rule is you should spend 30% of your income on rent. But according to the US Bureau of Labor Statistics, the real expenditure on rent is almost 40%. With such statistics, it is hard to improve your living standards, leave alone investing.

This calls for creativity. Through house hacking, you can overcome the money barrier and become an investor with minimum resources. Build your portfolio while living rent-free.

However, implementing a house hack has its intricacies. Finding the right property, financing it, and renting it calls for hard work and dedication. Sound interesting, right? Let us learn more about it.

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What is House Hacking?

It is simply living for free. How? Use other people to pay your housing expenses.

Is this even real? Yes.

All you need to do is buy a single-family or small multifamily home. Make it your principal residence and rent portions of it to other people to share the space with you.

The portions can be one or two units for a multifamily home and a basement or a bedroom for a single-family home. Use the monthly rental income to pay off your mortgage payments and other expenses, essentially living for free!

Why House Hack?

The benefits of house hacking outdo the efforts you input.

1. Eliminate housing cost

When done right, you won’t spend a dime on housing. This will boost your savings and aid you in building your equity.

2. Enjoy flexible financing terms

With owner-occupied financing, you will revel in low down payments and interest rates. You can use programs like VA or FHA loans to benefit from 0% to 5% down payments. Through these attractive terms, you can effortlessly get into real estate investing.

3. Acquire knowledge of property management

You live on the property while learning to be a landlord. Your personal participation will inculcate valuable skills required to manage a rental property. The expertise gained will help you have a smooth transition into real estate investing.

4. A good stepping stone

After purchasing a house to hack, you don’t have to live there forever. Accumulate enough funds and buy another home to house hack. Then use your first home to get more rental income. Repeat the process. Over time, you will own a series of rental properties.

House Hacking Options

1. Renting a room

This involves renting out extra rooms to either short-term vacationers or long-term tenants. With, this option you will share the kitchen and living room with your renters. It is suitable for people you know well, friends, family or co-workers.

2. Changing existing space

If you don’t have excess rooms, then convert any available space to an income suit. Work on a cramped basement to create a livable space. You will not only get income but also increase the value of your property.

3. Renting an accessory dwelling unit (ADU)

An ADU is another separate building on your property. If it is not in your home, consider an addition above your garage. The best thing is you will live separately while sharing nothing with your tenant.

4. Small multifamily house hacking

This is a well-known housing strategy. You buy a duplex, triplex, or quadruplex, live in one unit and rent the rest of the units. You will enjoy your privacy with this choice.

Resource: How to Invest in Real Estate Course for Beginners

How to House Hack

To successfully leap from house hacking, you must start and finish right.

 #1: Research and network

Information is power. With the relevant knowledge, you will make sound judgments before any investment decision. Find out the properties that can work for you. The neighborhoods you are interested in.

Thanks to real estate podcasts, books, and investment groups. You will connect with other investors while acquiring precious tips on house hacking.

Use the information to create your business plan. The plan will be a road map in your investment journey. Your vision and objectives will ensure all your actions are in line with your plan.

 #2: Find the right property

Not all properties are fit for house hacking. Have a business mindset before deciding on a home. A suitable location is key. It will determine your rental rates and desirability. Localities with population growth and social amenities have a stable rental market which is favorable for business.

If you already have a house, discover ways to use it for house hacking. Be open-minded and welcome all possibilities. You can start by converting your basement into a living space.

For new homeowners, use several avenues to get a house of your choosing. Real estate websites like Zillow, Realtor.com, Redfin, houzeo.com, and Craigslist are superb sources of homes for sale.

Use your networks to get potential sellers. Better yet engage an experienced real estate agent to get a magnificent property.

 #3: Do your math

It is time to know whether your investment is worthy. Using estimated rental rates, calculate your rental income. Determine your estimated monthly cash flows by subtracting all expenses. Property taxes, insurance utilities, maintenance and repair, and mortgage monthly payments are some expenses you will incur.

A positive cash flow is a tick. It means you will live for free and still have some income to save. A negative cash flow will not be bad if it reduces your living expenses. However, it is wise to go with a property with positive projected cash flows.

The principal aim is to get a property that will propel you to achieve your financial goals. Through an early analysis, you will make a fact-based decision.

Read: Real Estate Transaction Costs to Expect

 #4: Secure financing

Being an owner-occupant, acquiring finance is not a challenge. Check out homebuyers help programs. The federal housing association (FHA) finances multi-family homes up to 4 units.

Depending on your credit score, you will pay a minimum down payment of 3.5% and mortgage insurance premiums. Alternatively, you can use conventional loans that require a down payment of 20%. Select a financing option with charming terms and low down payments.

 #5: Close the deal, move in, and rent it

Finally, you are certain you have selected the right property. You have arranged your finances. It is now time to set foot in real estate investing. Real estate transactions can be complex. Talk to a real estate attorney to walk you through the process. You don’t want any legal issues or alien claims on your property.

Screening your tenants is very crucial in this case. Remember, you will live on the same property. Have a criterion for selecting your tenants. Those that pay promptly are a gem. Ensure proper maintenance of the home. Be proud of your achievement and watch your savings grow.

To sum up

Would you consider house hacking as a lucrative real investment strategy? Definitely, it is. To succeed, follow the right procedure. Research, select the right property, do your analysis, finance it cheaply, move in and rent it out to responsible tenants. Through passive income, you will gradually grow your wealth. Make use of the available minimum resources and grow your real estate investment career.

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