What is House Hacking? Definition & Strategies
House hacking is a real estate investing tactic that involves purchasing a primary residence and then finding a way to rent out a portion of it, which then helps to generate a steady income and pay off your mortgage. This is an effective way for individuals, especially first-time home buyers, to gain access to the real estate market sooner.
This blog will provide you with strategies and tips for a successful house hacking initiative.
Key House Hacking Strategies
The best approach varies depending upon your circumstances and the laws of your area. There are several strategies you can employ to achieve success.
Multi-Unit Properties
This is the conventional and most successful method of house hacking.
- Duplexes, Triplexes, or Fourplexes – Buy a duplex or a fourplex and live in one of the units and rent the remaining units out. This gives a homeowner the highest privacy since they all live in separate units.
- Benefits – You may lease whole units, potentially earning you sufficient money to pay off the whole loan. By doing this, you also get to learn all sides of multi-unit property management.
- Financing – Since you will be owner-occupying, you will qualify for preferential owner-occupied financing such as FHA or VA loans that require lower down payments (as little as 3.5% for the FHA or 0% for VA loans) and lower interest rates that would not normally be extended for investments.
Single-Family Homes
You can also hack a standard single-family residence using various methods.
- Renting Out Spare Rooms – The most accessible means of earning the income would be to rent out extra space in the house to roommates long-term. This would cost the least but would share communal spaces like the living room and kitchen.
- Accessory Dwelling Units (ADUs) – Utilize an existing space such as a basement, garage, or attic and transform it into a separate living unit or construct a new detached “granny flat” depending on zoning requirements in your area. This will give you greater privacy for yourself and the tenant.
- Short-Term Rentals – If you have a tourist-friendly or in-demand zone in your real estate portfolio, you can consider renting an additional room or an ADU on platforms like Airbnb or Vrbo. This can potentially give you higher average nightly rates but also demand more of your time.
Creative vs. Niche Strategies
Apart from living spaces, there are other alternatives, which are as follows.
- Rent of Storage or Parking Space – If you have some additional space in your garage, barn, or a spacious driveway, you can rent the space to people for storing their vehicles, boats, or other things.
- Live in Flip – You buy a home that is not expensive but is in a state that demands repairs. You then inhabit the home during that time, repair it, and then sell it at a higher price.
Important Considerations of Attaining Success
If you are aspiring to succeed in house hacking, the following are among the factors you should consider.
- Legal Compliance – It is necessary to investigate the zoning laws, HOA regulations, and landlord and tenant laws before initiating a project. The violation of laws may generate significant fines.
- Tenant Screening – You will be living right next to your tenants. Screen your tenants properly to ensure a harmonious living environment.
- Finances/Budgeting – Crunch the numbers to make sure that the rents will generate enough income to pay the costs, including vacancies, repairs, and maintenance.
- Boundaries – Establish restrictions in a signed lease agreement to sustain good landlord-tenant relationships.
- Seeking Professional Assistance – Get the services of a real estate agent who is prepared to serve the needs of an investor. It is advisable to consult a tax expert to use all tax advantages in favor of investing.
Bama Home Buyers: Your Partner in House Hacking
Bama Home Buyers have helped hundreds of homeowners sell or buy houses for cash. We have extensive experience in real estate investment that allows us to provide personalized, effective guidance to support individuals in making informed property decisions.
House hacking is one of the robust strategies for first-time buyers, allowing them to make a profitable and long-term income source. Book a free consultation call today and start house hacking with us.
Conclusion
Coming back to the main question: what is house hacking? It is an investment strategy where you purchase a property and rent out a portion of it to earn a steady income. However, if you want to be successful, you need to navigate compliance requirements, choose a suitable property, conduct tenant screening, and get professional help if required.
Ready to initiate house hacking? Reach out to Bama Home Buyers to start house hacking with confidence and create a steady income for you.