What is house hacking?
House hacking is the act of buying a home or multi-unit property that you live in and rent out the remaining rooms or apartment units.
House hacking is probably the smartest way to get into real estate ownership and investing. Here’s why:
- Dramatic reduction in monthly expenses. The rental revenue you generate by renting out your extra bedrooms or apartment units can in many cases entirely pay for the monthly carrying costs of principal, interest, taxes and insurance (commonly referred to at PITI). Depending on your market, you can live for free or even get paid to own your home. This is because your roommates cover your monthly homeownership expenses. In the very worst case, your monthly financial obligations will be significantly lower than they otherwise would be if you were renting or buying an equivalent property.
- De-risking home ownership. Buying a house can be daunting. What happens if you lose your job? How are you supposed to make ends meet. When you house hack, your financial burden is eased and you can more easily avoid financial hardship and reduce the odds your property will be foreclosed on.
- Increased savings. As a rule of thumb, housing expenses account for roughly 30% of the typical adult’s monthly budget. By house hacking, you are freeing up a considerable amount of money to save or invest. By house hacking, you can accelerate the speed at which you can reach your saving goals (i.e. saving up for your next investment property).
- Rental property management experience. What better way to learn how to manage a rental property, and manage tenants than through direct experience? By house hacking, you’ll find out soon enough if building and managing a larger rental property portfolio is something you would enjoy.
- Avoidance of selling. When it’s time to move from your house hack, you will not be as pressed to sell the property. You can fill your room with a tenant, and you’ll already have significantly more savings and assets thanks to the time you spent house hacking.
House hacking is a fantastic way to buy not just your first property, but any investment property (as long as the deal terms are carefully evaluated). Many successful real estate investors house hack multiple properties. The merits of house hacking are real and we could not be more supportive of anyone who employs this tactic to build wealth through real estate.