REAL ESTATE
April 26

What Is House Hacking and Would It Work for Me?

Robert Reardon

Those of you reading this article may be new to the idea of house hacking or might be looking for more detail about the process. Either way, defining the term is the first thing we want to do.

So what is house hacking? It’s a practice where you own and live in a section of a property but another part is rented out to help you with your expenses.

House hacking can come in several forms. It could mean you have a single-family dwelling and you rent out a guest bedroom. Or maybe you own a duplex and rent out one side to someone else. Either way, that’s what house hacking is.

 

Common Reasons to Participate in House Hacking

Why are people interested in house hacking? This is likely the second question you have and it’s a valid one. The simple reason is to make money. The ultimate goal is to gain enough rental income to make up for the expense of owning a property. At the same time, you get to remain there in a comfortable living environment.

But this isn’t the only reason to look into house hacking. A lot of people want to get started in real estate investing but don’t have the initial money needed. House hacking is the ultimate way to change that. Tons of real estate investors started with house hacking.

For the majority of people, housing is a huge chunk of their expenses, no matter how much money they bring home. When that expense disappears, it leaves you with the chance to start saving – and do it fast. It’s one of the top ways to start building wealth.

While anyone can engage in house hacking, it works extremely well for young homeowners. You will, however, need to learn how to be a landlord to move forward.

 

Would House Hacking Work for You?

As mentioned, a perk of house hacking is that you can cut down on living expenses. You might have heard of the 30% rule when it comes to housing. The idea is that you should spend about 30% of your earnings in a month on rent.

If you’re someone who makes $3,000 a month, this means spending $1,000 on rent. The problem is, for Americans, most of us spend 40% of our income on rent. With rising property costs, this isn’t likely to change. It especially affects younger generations who are more likely to rent than own.

When you spend less on your housing, you have the chance to invest in your future and improve your quality of life. It’s a major benefit of house hacking but it’s far from the only one.

 

House Hacking Benefits You Need to Know

Reducing or cutting out the costs of housing is merely one reason to consider house hacking. There is an assortment of other reasons to move forward. We’ll go over a few of them below:

 

  • Enjoy flexibility: If you have an evolving lifestyle, house hacking provides the flexibility you need. For instance, maybe your company transfers you to a new location for several months. Your home can be rented out and you still bring in that income. The property can always be converted as a family grows.
  • Gain knowledge about real estate: When you live near tenants, learning to be a landlord will occur quickly. Having personal involvement in the process will provide you with important skills to perform maintenance tasks and manage properties.
  • Create wealth using passive income: When you are house hacking, the extra income you earn makes it easier to pay down your mortgage. Once that is done, you can save for a new investment property. Each of these properties provides income on a mostly passive basis.
  • Lessen risk: Another benefit of house hacking is the ability to reduce your risk. It takes the risk out of a home purchase since you’ll be subsidizing all the monthly costs associated with owning a home. You can build equity and reduce costs while having more savings for investments.

 

How to Get Started with House Hacking

House hacking is similar to any other purchase of a home, except you want to look into the property more seriously, as well as the rental potential. Below are the seven steps to start house hacking if you are at the beginning of the real estate purchase journey.

 

 

1. Check Your Finances

The first thing you need to do is check your credit. FHA loans require a minimum of 580 and traditional loans start at 620. Don’t worry too much if your credit score isn’t where it should be. Focus on increasing it and then you can move on to the other steps.

 

2. Obtain a Mortgage

Being pre-approved for a mortgage is the next step in the process. You’ll fill out an application for a lender, agree to a credit check, and provide several financing documents. Once that’s complete, the lender will decide whether you are prequalified and give you an idea of how much you qualify for. This is a good guideline to look into properties you can afford.

 

3. Choose an Excellent Agent

Many people choose to work with a real estate agent. It’s best to select someone who has worked with investors and knows about house hacking. Looking at a property in terms of investment is different from choosing one as a typical family home. The right agent will assist you with finding, screening, and placing tenants down the line.

 

4. Do Some Market Research

Before you purchase a home, you should look into where it will be located. Check whether the typical rental rates are enough to cover the cost of your mortgage. You should also look into zoning laws since some places prohibit rentals. Tenant protections and laws are also things you should be aware of.

 

5. Select the Best Property

Now you can start the process of looking for the right property. Look at the home as a rental so you can be sure you make money even if you move it. This also gives you coverage in case of vacancies. The property you choose should either get your mortgage to zero each month or as close as possible.

 

6. Close on the Loan

After making an offer, the seller can accept or decline. If it’s accepted, the lender will underwrite your loan, order an appraisal, and schedule a date for closing. This is the point where you pay the down payment and closing costs, sign the paperwork, and get keys to the property.

 

7. Move in and Select Tenants

Finally, you can move in and start screening potential tenants. A few of the things you should do in the process include employment verification, a credit check, and a background check. You can bring in someone else to handle the rental process or do it on your own.

 

Tips for House Hacking Successfully

Before you start house hacking, you need to have a strategy for the process. Will you be getting a roommate, converting the garage, or putting a spare room up for rent? All of these strategies are possible but what you choose will depend on preferences as well as what the property is suitable for.

On top of that, you need to be certain that you manage all aspects of house hacking professionally. That means tracking all your income and expenses, setting a fair rental rate, and having a lease agreement for whoever moves into your property.

It’s also useful to be aware of the tax benefits that landlords can take advantage of. When you have expenses related to renting the property, those are tax deductible. Be sure you have a reliable system to track all these things to enjoy the best tax deductions. This also helps cut down on the tax liability of the money you earn, which gives you additional profit.

If you’re using a single-family home for house hacking, be aware of how many people can live in it. This can be complicated due to local and state ordinances. In most places, you can use something known as the 2+1 rule. This means every bedroom can fit two people plus one additional person in the home. So, for a three-bedroom house with a living room, up to seven people can live there.

 

Final Thoughts

If you’re excited to get involved in real estate investing, house hacking is an excellent way to start. It lets you learn everything you need while providing you with money to afford other investment properties. House hacking makes you an entrepreneur so get out there and start scoping out your opportunities.

When managed well, this could be just the first investment property of several. It could also fit into your investment and wealth-building strategies moving forward. Make sure you’re armed with the information and tools you will need to do this successfully. This will help you run professional house hacking services, maximize your cash flow, help you scale your portfolio, and build wealth.

 

Seller Leads in Real Estate

Unlocking Success in Rental Property Investments: A Comprehensive Guide to Evaluating Potential Properties

Investing in rental properties can be a lucrative venture, providing a stable income stream and long-term wealth accumulation. However, to maximize your potential returns and make informed investment decisions, it is crucial to carefully evaluate potential rental properties.

Read Story
Seller Leads in Real Estate

Real Estate Investing Mastery: Expert Tips to Supercharge Your Portfolio Growth

Investing in real estate, particularly rental properties, can be a lucrative way to grow your wealth over time. However, it requires careful planning, analysis, and execution to build a successful real estate portfolio.

Read Story
Seller Leads in Real Estate

Mastering Real Estate Investing: Navigating the Pitfalls of New Investors

Investing in real estate can be an exciting and potentially lucrative venture. The promise of passive income, wealth creation, and financial freedom often lures new investors into the realm of real estate. However, navigating this complex and dynamic industry requires knowledge, careful planning, and avoiding common pitfalls.

Read Story
Seller Leads in Real Estate

"The Tenant's Wishlist: A Comprehensive Guide for Property Investors to Meet Tenant Demands and Maximize Rental Success"

Investing in rental properties can be a lucrative venture, but understanding what tenants truly desire is crucial for success. This guide aims to provide property investors with a comprehensive understanding of tenant preferences, enabling them to make informed decisions when acquiring and managing rental properties.

Read Story
Seller Leads in Real Estate

Decoding Rental Property Depreciation: A Complete Guide for Financial Success

Owning a rental property can be a lucrative investment, but it also comes with various financial responsibilities. One of the essential aspects of managing rental properties is understanding how to handle depreciation. Depreciation allows you to deduct the cost of wear and tear on your property over time, reducing your taxable income and increasing your potential for long-term financial gains.

Read Story
Seller Leads in Real Estate

What Is House Hacking and Would It Work for Me?

House hacking can come in several forms. It could mean you have a single-family dwelling and you rent out a guest bedroom. Or maybe you own a duplex and rent out one side to someone else. Either way, that’s what house hacking is.

Read Story
Seller Leads in Real Estate

Here’s How to Snag Unlisted Properties

The best deals aren't published. As any smart investor knows, you have to go below the surface to find off-market opportunities that make it possible to close without competition. What is an off-market listing? Off-market real estate refers to any property that is being sold outside of the conventional "listing" process.

Read Story
Seller Leads in Real Estate

Real Estate Investor FAQs

This Real Estate Investor FAQ blog covers questions on How to: get started in real estate investing, Types of real estate investors, Real estate wholesaler, short-term rental income, reducing your tax liability, types of financing, and hard money loan.

Read Story
Seller Leads in Real Estate

Start Your House Flipping Business the Right Way

Many who are interested in real estate investing want to get into the house-flipping business. It looks fun, and if you watch all the flipping shows on television, you might even think that it’s easy.

Read Story
Seller Leads in Real Estate

What You Need to Know About Short-Term Rentals

Are you considering turning a property you already own into a short-term rental? Perhaps you are a real estate investor actively looking for properties that would fit well in this niche. Regardless, you will need to make sure you know the ins and outs of these types of rental properties before getting started.

Read Story
Seller Leads in Real Estate

What Is Wholesaling in Real Estate and Is It Right for Me?

Anyone interested in real estate investment has probably come across multiple ways to get started. Some people flip houses, while others rent out properties. Another method to make money with real estate is through wholesaling.

Read Story
Seller Leads in Real Estate

Maximizing Your Potential: 10 Effective Strategies for Real Estate Lead Generation and Conversion to Reach 6 Figures

Real estate lead generation and conversion is a crucial aspect of building a successful real estate business. In today's competitive market, it is essential to have a strategic plan to generate and convert leads effectively.

Read Story
Seller Leads in Real Estate

Revolutionizing Real Estate Marketing: How SmartZip's Predictive Platform Gives Agents and Teams a Competitive Edge

Real estate is a highly competitive industry, and it can be challenging for agents and teams to stand out from the crowd. That's why many real estate professionals turn to SmartZip, a leading provider of predictive marketing solutions, to help them boost their visibility, generate more leads, and close more deals.

Read Story
Seller Leads in Real Estate

Boosting Your Real Estate Business with Reach150: The Benefits of Online Reviews and Testimonials

Real estate agents face a challenging and highly competitive market. With so many options available to homebuyers and sellers, it can be difficult for agents to differentiate themselves from the crowd. One way to do this is by leveraging online reviews and testimonials. This is where Reach150 comes in.

Read Story
Seller Leads in Real Estate

Maximizing Email Response Rates in Real Estate: Tips and Best Practices

The real estate industry is highly competitive, and it can be challenging to capture the attention of potential clients. However, email marketing is a cost-effective and efficient way to reach out to prospects, establish relationships, and promote your business.

Read Story
Seller Leads in Real Estate

10 Powerful Real Estate Marketing Ideas to Attract More Clients

Real estate marketing is a vital component of any successful real estate business. The industry is constantly evolving, so it's important to stay up-to-date with the latest marketing strategies to ensure you're reaching potential clients effectively.

Read Story
Seller Leads in Real Estate

5 Steps to Nurturing Your Past Clients and Sphere of Influence in Real Estate

Real estate is a highly competitive industry, and building long-term relationships with past clients and sphere of influence can help you stand out from the competition.

Read Story
Seller Leads in Real Estate

Unlocking Real Estate Lead Generation: Proven Strategies for Success

Real estate lead generation is the process of finding potential buyers or sellers who may be interested in your services. As a real estate agent or broker, it is essential to generate leads consistently to keep your business thriving.

Read Story
Seller Leads in Real Estate

Sphere of Influence Real Estate Marketing: Building Relationships for Lasting Success

Sphere of Influence (SOI) real estate marketing is a strategy used by real estate agents to grow their business by tapping into their existing networks. The SOI refers to the people in an agent's personal and professional circles, such as friends, family, colleagues, and past clients.

Read Story
Seller Leads in Real Estate

Digital Trust: How Real Estate Agents Can Build a Positive Reputation Online

The real estate industry has undergone significant changes in the past decade, particularly with the advent of digital technology. The internet has provided agents with a wealth of information and tools to streamline their work and reach a wider audience.

Read Story
Seller Leads in Real Estate

Maximizing Your LinkedIn Presence: Best Practices for Real Estate Agents

LinkedIn is a valuable social media platform for real estate agents to connect with potential clients, build their personal brand, and showcase their expertise. With over 700 million users, LinkedIn offers a vast network of professionals that can help agents grow their business.

Read Story