You’re investing wisely if you’re choosing to put your money in the real estate market. Most people’s first major real estate investment is a residential home for themselves, and that’s great, but if you’re intimidated by the amount of upkeep, maintenance, and work you’ll be putting in, there’s something that may sweeten that deal for you. Before you make an offer, you might want to consider something called house hacking.
Simply put, house hacking means that you as the property owner have found ways to generate income from the property you’re also using for your personal residence. Depending on your relationship with your previous landlords, you may feel resistant about becoming one yourself. But before you level any judgements against this avenue of investing, you should think about how this opportunity can not only assist you with your mortgage payment, but could potentially generate positive income for you. Yes, your house can and will work for you if you do this right.
To be clear: sure, investing in real estate will be a lot of cash upfront, however, in the long run, you could end up seeing some significant return on your investment before you put your property back on the market. If you’re seriously considering buying property, chances are you’ve already assessed your financing options and have been pre-approved for a mortgage up to a certain amount. Now, if you were to bring house hacking into this equation, your lender will reevaluate that number and count a portion of your rental income from the portion of your property you’re choosing to rent, otherwise known as net operating income (NOI), towards your mortgage. To put it plainly, your lender will count up to 75% of that NOI and use it to help you qualify for your mortgage. So, before you even make an offer, you’re already being helped by electing to house hack.
Now, when it comes to selecting the property you want to invest in as a house hacker, you’re obviously going to want to choose one that’s primed and ready for a renter. These multi-use properties are: duplexes, triplexes, 4-plexes, multi-family homes, single-family homes with an ADU (additional dwelling unit, also known as a guest house), or properties with finished basements and separate entrances that can be converted into apartments. Your broker and real estate agent will advise you about whether this property is zoned properly for renting and exactly how much you can claim as your NOI. If you’re buying the property from a previous landlord, you can ask to see their numbers to gauge how much they were charging their renters, too.
House hacking isn’t without its drawbacks. Of course after hearing about these benefits, house hacking seems like an obvious alternative for first time property owners, but there’s sacrifices that come with this course of action. There’s a few cons to all those pros. If you’re electing to buy a property with the intention of renting a portion of it out, you will not only be the landlord, but you will also be living in close proximity to your tenant. Who do you want to be your closest neighbor? Who would you trust to pay rent on time given that you’ll need that income to make your mortgage and utility payments? The properties that are both available and fit within your budget may not be in the most ideal area of town you always dreamed of living in. There’s no one coming to rescue you if you have a leaky roof, no property manager to schedule a plumber to fix those pipes, that’s all on you. If you’ve been a property manager in an apartment complex, this may not scare you so much, and that experience may have even primed you to be the best house hacker possible.
Not everything is for everyone, but so often, first time home buyers stay fixated on purchasing their dream home when they invest in their first home. That doesn’t always need to be the case. Especially if you’re just starting out, there is no better way to ease your way into investing in real estate than to get some help from a renter you trust.
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