Traditionally, house hacking involves buying a multifamily property, living in one of the units, and renting the others out to tenants in order to subsidize some of your housing costs. If you think this could be a good investment strategy for you, read on. We've written a guide to how to get started house hacking. It covers what house hacking is, how the process works, and how to decide whether a particular property makes sense for you to make an offer.
What is house hacking?
In real estate, the term "house hacking" describes the practice of buying a multi-unit property, living in one unit, and renting out the others. However, in practice, you can do this with any type of rental property. For example, you could also rent out a spare room in your home through Airbnb or VRBO to generate excess income.
Truthfully, house hacking can be a very lucrative investment strategy and a huge step toward gaining financial freedom. For one thing, it can help you reduce or completely wipe out your recurring housing expenses. All you have to do is charge enough rent to cover the cost of your mortgage payment and any monthly utilities.
It also can be a great way to ease into being a landlord. In this case, since you'll also live on the property, you'll be close at hand if there are maintenance issues or a problem with one of your tenants. Investors just starting out may find living in their investment property makes it easier to manage the day-to-day responsibilities of being a landlord.
How does house hacking work?
In general, how hacking works is a lot like buying any other home, except you'll most likely be focusing on buying multi-unit properties rather than a single-family home. Still, to clarify things, we've listed the steps for successful house hacking.
Get clear on your financing options
The first step to buying real estate is to solidify your financing. Once you have your financing in place in the form of a preapproval, you'll have a better idea of how much house you can afford. Having this document in hand will also give you more credibility with sellers. We'll go over your financing options in more detail, but the first step toward house hacking is to talk to a lender.
Look for viable properties
The next step is to look for viable properties. Here, you'll need to decide once and for all if you want a single-family home, a single-family home with an accessory dwelling unit, or a multifamily property. After that's settled, you'll work with a real estate agent to view possible options in your area.
Do the math and make an offer
Before you make an offer on a property, make sure the math works. After all, when you're trying to generate passive income from a rental property, it's important to have a clear idea of your bottom line. Again, we'll get into more specifics on how you can do that, but the key is to choose a property that makes the most financial sense.
Move in and make repairs, if needed
Once your offer is accepted, you'll go through the closing process. After you close on the home, you'll move in and make any necessary repairs. Remember, while making repairs may seem tedious, the more updated your unit is, the more you'll eventually be able to charge in rent.
Rent it out
The last step is to rent any available units in your home to a tenant. At this point, you'll have to keep up with the day-to-day responsibilities of being a landlord. However, when it's time to pay your bills, if you've done your math right, you'll have the ability to live without a recurring housing expense and possibly even to collect some passive income each month.