Getting into real estate can be hard. If it wasn’t, I’m pretty sure a whole lot more people would be property investors by now. So, the best first step to take is to try getting a foot in the door through something called house hacking.
In case you’ve been asking yourself how some people have managed to either get into or keep growing their portfolios, this is one way of going about it. It’s a pretty revolutionary strategy that can lead to immense financial wealth in the long run.
For a lot of people, just saving up for a downpayment can be the biggest hindrance to investing in property. With house hacking, though, you may not even have to worry about the mortgage repayments after that. That is if you play your cards right and do the necessary number crunching.
Investing in rental property has proven to be one of the best decisions my wife and I have EVER made! That’s why I’m big on real estate investing.
Long story short, we’ve always dreamt of early retirement (which we managed to tick off our list, thankfully). After weighing up our options and looking into various investments, we eventually decided that we’d turn to rental property. In fact, we bought our first rental property before we even had a home! We were still renting.
The point of my little story is, I know very well just how lucrative property investment can be. At the same time, not everybody is able to get started, for various reasons. Fortunately, there’s a way around it.
Presenting house hacking.
What is house hacking?
So, what is house hacking? Simply put, house hacking means finding ways to generate income from your primary residence. By buying a multi-unit property, you stand to generate rental income from letting out the other units or parts of your home.
This will allow you to offset some of the costs of home ownership against the rental income, which is great!
On the flip side, this also means you might have to compromise on some areas of comfort and be open to potentially having strangers around you. There are pros and cons to everything, but if you’re looking to truly get the most value from your home, then house hacking may just be your best bet.
Why it’s a good first step
House hacking is a good first step for quite a few reasons. It covers your personal living situation, while also allowing you to generate an income from the additional units. Naturally, the rental income can then be used to pay the mortgage you may have taken out to fund the property purchase.
If you’re living on your own or have a relatively small family, house hacking could work for you.
It means you get to increase your assets and build equity, while the tenants contribute towards the bond. Whether you decide to save towards another property or pay off the initial one quicker, house hacking can help you get started in property sooner than you thought you could.
These are just some of the ways that house hacking can benefit you:
- It eases you into the role of landlord and the world of real estate.
- You could generate positive income from the rental income, even after mortgage repayments.
- It can lower your taxable income base.
- Financing a primary residence is often more affordable than an investment property.
- It allows you to have a passive stream of income. (Okay, I know this one is somewhat debatable because house hackers have more responsibilities and stress than regular landlords)!
3 ways to get into house hacking
I want to paint a clear picture for you of what house hacking would mean for you. While house hacking is indeed a great option, I’ll also highlight some of the not-so-nice things that you also need to keep in mind if you’re considering house hacking.
1 – Let out some of the rooms in your current living space
If you don’t quite have multiple units on your property, don’t worry, house hacking can still work for you. It just means you’ll probably have to let people into your space. What do I mean by this? Well, if you have a spare room in your home, you could simply clean it out and make it tenant-ready. Of course, this means you’d have to share your house.
In case you have safety concerns or just don’t like sharing your space with strangers, then you could always work around it. For example, if you have a friend or family member that needs accommodation in the area, ask them if they’d be willing to be your tenant instead.
Whatever setup you eventually decide on, the one thing I would advise you to do is SET SOME BOUNDARIES!
2 – Let out a spare unit of your house
Another way to approach house hacking is by letting out a spare unit such as a basement. With this option, you might need to do a few renovations here and there to make it possible. The good news, though, is that it’ll probably pay itself back quite quickly.
Another piece of advice – learn to allocate your expenses and separate yours from your tenant’s. That way, it’ll become easier to do your calculations and see if you’re going about house hacking the right way. Most importantly, you’ll be able to see if it’s actually working for you or not.
3 – Buy a house with multiple units as your first house purchase
This is the most ideal way of house hacking for many people. If you buy a house with multiple units from the get-go, you’ve basically hit the house hacking jackpot! Chances are, the property was built for multi-unit living and tenants in any case, so most of the amenities should be sorted.
House hacking in a nutshell
Any property investor will probably tell you that finding good tenants is EXTREMELY important, more so if you opt for house hacking. When you consider the fact that your tenants will be living on the same property as you, you definitely need to make sure that they are really a good fit!
Make sure you have a pretty decent vetting process in place, just to save yourself the trouble and headache down the line.
That being said, I personally think everybody should try to have rental property in their lifetime. Of course, it’s a lot easier for some than others, but house hacking is an excellent choice if you’re still finding your feet. In fact, when done right, house hacking could even allow you to live in your dream neighbourhood or house for free!