House hacking is one of the most trending investment strategies among people who own multiple houses. It means when you're living in one of the houses as a primary residence, and other owned properties have been rented out to pay your house mortgage.
But if you own a single property, you can still follow house hacking strategy, wondering how? Well, you can rent out the extra bedroom, basement, or any other portion of your house.
This a popular strategy for individuals and investors looking for a quick fix and flip, or for people wanting to own multiple properties and create a passive income source. Are you wondering why you should go for house hacking? Continue reading to learn more about house hacking. So let's get started!
Why House Hack?
The fundamental principle of house hacking is that other people pay for your housing expenses, which helps you to focus your efforts on creating a better passive income. Additionally, it also helps in growing your real estate property portfolio. Let's learn about the additional benefits of house hacking.
#1. Cash inFlow
This is among the most significant benefits of having rental properties the extra income that comes in each month after all the expenses are cleared. The additional income can be used to either pay the mortgage or to invest in more properties.
Real Estate investors love to follow house hacking strategy because it's a means of funding a real estate property. If you look to finance your new house using an FHA loan, you can own the property for just 3.5% of downpayment. In simpler words, if you buy a house worth $200,000, you'll only need to pay $7000 in downpayment. The rest you can pay in a 30-year fixed-rate mortgage, to pay the rest of the mortgage you can rent out space. This will increase your property portfolio. Plus you don't need to pay for the mortgage because you can rent it out and your tenants will indirectly pay the mortgage of your house. This is why many real estate investors go ahead with a house hacking strategy. It's a great investment source.
Note: To qualify for an FHA loan you need to follow some rules, including “owner occupancy” for one year. That means you can't rent out your house in the very first year of purchase.
By following this investment strategy, many new home buyers and real estate investors can get some landlord experience with low risk. People can get the knowledge of how to advertise about tenant vacancies, screening, management, understanding contracts and agreements, dealing with sudden housing repairs and issues, negotiating with tenants, and bookkeeping.
#4 Lenders Like Experience
If you want conventional financing in the near future, traditional lending institutions, whether small, medium, or large banks they like to see that you've successfully owned or managed rental properties in the past before giving you a loan. Having an experience of managing rental houses will increase your chances of getting larger loans.
House Hacking Tips
#1 Expert advice that people should invest in multi-unit property to get the most of house hacking. For example, buying a duplex or a two-story house is a good idea. These kinds of properties can fetch house owners better and also provide them with the independence to have their own personal space.
#2 If you don't have a big budget, you should invest in a property with multiple bedrooms with bathrooms attached. If a room or two in the house doesn’t have a toilet attached, then keep those rooms for your own use.
#3 You can also go for homes with a basement or the ones with plans that allow further expansion. This way, individuals can rent out one part of the house and live in the other part.
Before investing in a real estate property, keep in mind that not every deal is an instant success. You need to be careful, there will be ups and downs but keep your focus and don't quit. Even if a property doesn't pay you well currently, there are chances that in the near future it can turn into an excellent investment. Have patience and do your homework before acquiring a real estate property.
Out there in the real estate market, there are both good and bad deals, so ensure that you spend a good amount of time and energy while buying a rental property. This will increase your chances of having financial success and freedom.