Start Investing in Real Estate by House Hacking

Getting started in real estate investing requires know-how, creativity and educated risks, and this is particularly true for younger, less experienced investors. When investing in your first home you’re your second or third for that matter, affordability is key and that’s why house hacking has been a tried-and-true investment strategy for many. In fact, it’s how I got started in real estate when I was in my early 20s…except Millennials had yet coined the phrase “House Hacking.”  My family and friends just called me crazy!

What Is House Hacking?

House hacking is a real estate investment strategy wherein an investor buys a property, such as a duplex, and lives in one unit while renting out the other to help cover mortgage. It allows the investor to significantly reduce or eliminate housing expenses while building equity and generating rental income. And you don’t have to limit yourself to one type of house hacking when there are so many creative ways to get started and keep the momentum going. That said, all types of house hacking are regulated, so it’s your responsibility to know and abide by local rules and regulations.

Types Of House Hacking Strategies:

1. Room Rental House Hack: Instead of purchasing a multi-unit property, this strategy involves buying a single-family home and renting out individual rooms to tenants. The owner typically lives in one of the rooms while renting out the others, effectively reducing housing expenses. Even when there is some expense involved preparing rooms to rent in an appreciating housing market it may be worth the cost.  When I did this as a 22 year old, I was planning to rent a house with my 2 friends.  Instead, I bought the house and we all lived together anyway.  

• Traditional House Hack: This involves purchasing a multi-unit property, really any property,  and living in one unit while renting out the other units or bedrooms . The rental income from the additional units helps offset the mortgage and other expenses, making costs more affordable or even turning a profit.

• Finished Basements House Hack: When finished basements have bathrooms and kitchenettes, they are great options for house hackers. The homeowner can live in the basement while renting out the main home, depending on his or her living situation and income goals.

• Accessory Dwelling Unit (ADU) House Hack: Some homeowners choose to build or convert an accessory dwelling unit on their property, such as a garage apartment or barn, and rent it out while living in the main house.

• Short-Term Rental House Hack: With platforms like Airbnb, homeowners can rent out a portion of their primary residence on a short-term basis, allowing them to generate additional income. If you have the space, be sure to know short-term rental and HOA (Home Owners Association) laws since some HOAs forbid both long and short-term rentals.

• Live-In Flip House Hack: This strategy involves purchasing a fixer-upper, living in it while making renovations, and then selling it for a profit after a certain period of time. By living in the property, the investor can save on housing costs and potentially increase the property’s value through improvements.

• House Hacking with Houseboats or RVs: Some people choose to live in houseboats or recreational vehicles (RVs) while renting out their primary residence or other properties. This allows them to reduce their living expenses and generate rental income simultaneously.

In sum, house hacking can be a highly effective way for investors to start building wealth through real estate while minimizing their housing expenses. However, it requires careful planning, property selection, and property management to ensure success. When done thoughtfully and creatively, it maximizes money, partly because house hacking takes an asset perspective on real estate versus a lifestyle perspective. Many people buy homes because they want a certain standard of living and end up not increasing their wealth as a result, especially when the price tag is high.

Conclusion

With housing consuming  33% of the average American’s budget, millions of people are living paycheck-to-paycheck, making them dependent on their jobs as a result. House hacking offers a way out of this mentally and emotionally draining cycle with no end in sight. Cash-strapped younger investors can generate reliable passive income, grow their next egg, achieve long-term wealth, and liberate themselves from constant money woes through a variety of house hacking strategies.

Why don’t more people take advantage of this investment hack?  Fear, plain and simple.  Don’t be afraid.  Take steps today to protect your future. 

For questions, more information or help getting started, please contact me at Atlas Real Estate.

Mike Hills, Vice President, Brokerage