Are you ready to own your own home but afraid of not being able to afford the mortgage? Have you ever dreamed of being a real estate mogul? Do you just want to get out of your parents house and upgrade your lifestyle? The key to getting off on a great financial start is the house hack when buying your first home.
House Hacking is the act of purchasing a single or multi-family (2-4 unit) home with the ability to rent a portion of this home to a tenet or roommate while being your primary residence. The property needs to have the ability to bring in enough rent to cover the full mortgage payment. Essentially, creating the condition for you to “live for free”. By using low down payment financing, typically reserved for first time home buyers, you can take full advantage of this powerful hack.
Why is the house hack so effective for people starting their financial journey?
The house hack is the most powerful way for a person to build a foundation for their financial game because it allows us to eliminate the biggest expense we have in housing, pay down a mortgage easily, and adds another income source passively. The best part is we can start with as little as a 580+ credit score, low income, limited work history and a 3.5% downpayment! Check out the FHA website for more info. Not only will this allow us to start building wealth, but provides a way to drastically turn a poor or beginning financial position around. When we are able to have someone else pay down the mortgage we are taking advantage of OPM or other peoples money. Through the rental income and the debt we used to buy the house hack we are leveraging the power of money to work in our favor. This allows to us to completely save the money we used to spend monthly on housing without reducing our lifestyle at all.
There are so many benefits its hard to mention them all! Don’t forget the additional cash flow from rents over the cost of the mortgage and the ever growing appreciation of your new home which can be sold later for a profit. Come tax time you will have more write-offs, lowering the amount you pay in taxes. Finally, many studies show, home ownership leads to much happier people and a better sense of a strong community. Whats stopping you from house hacking today? Well, I often hear , ‘Does this mean I will have to be a landlord to house hack?’
Do you have to become a landlord to house hack?
For most people, the term ‘landlord’ has a negative connotation. Partly, because any time we hear the word someone is telling us a story how they couldn’t afford rent, or the landlord did this to me or landlords are getting rich off our money. The word landlord followed humans from a dark time of feudalism. Lords of the land owned everything and peasants slaved away as subjects. Luckily we no longer have to tolerate feudalism.
In todays age, that sounds horrific and its no wonder why we negatively view landlords. In order to house hack, we have to view land lording as a way to provide a useful service to people of our community. People need and want to rent apartments because of ease, lack of responsibility for repairs, finances and the ability to move around freely. The list of benefits of renting can create an entirely new article. And providing that for a renter is how this all works!
The house hacking person will be living at the property and has the ability to have their own touch to the place. It can be fixed up while being the primary residence and a lot of times this provides much better living conditions for the tenet. My tenet and I are friendly and have a mutual respect for each other. Although her apartment is solid and doesn’t require regular repairs I am able to pop in and spruce up paint, fixtures and other parts of the place to make it nicer for her to live. Ultimately, she is receiving a better service for her money and is much happier. I rarely use the word landlord as it is clearly an outdated term. I am a property owner who provides a wonderful, safe and affordable place to live for other people. However, you don’t have to be a landlord in the traditional sense.
Can I buy a single family home and still house hack?
Absolutely! The single family home can make for an excellent house hack. The property has less mechanics, a more homey feel and can often times be a lot cheaper. I have a friend who pulls off the single family house hack without being ‘landlordy’. He successfully purchased a 3 bedroom 1.5 bath home in a quiet and safe residential neighborhood. This home had a nice basement that also served as a livable space capable of renting.
This was his first time buying a house, using a low downpayment method his mortgage was roughly $1,000. With the three other rentable spaces in his home he brought in three roommates each paying 500 dollars a piece. He is now bringing in $1,500 dollars a month, paying the thousand dollar mortgage and putting 500 dollars a month in his pocket. Did I mention he is also living there for free? With that additional 500 dollars he is able to save it or improve the house overall by bettering the landscaping, painting the interior/exterior, updating the roof and mechanicals.
He is increasing the value of his rental dramatically by leveraging the additional rooms. The people he lives with don’t view him as a landlord but a friend they roommate with. They are able to rent a much better place for way cheaper then they could find elsewhere, it’s truly a win-win situation. Down the road if he wants to live alone, start a family or move this property can handle all of it with very low risk. What if you want to go all out with your house hack?
Make the most out of your house hack with multi-family homes
Are you as excited about house hacking as I am? If you are ready to dive in and become a big real estate investor hacking your way into multifamily homes is the best way to start. Multi-famly homes are defined as two to four unit premisses. The means there are anywhere from 2-4 seperate apartments with their own individual door and key. The tenets usually pay their own utilities bill but not always.
The house hack strategy works wonders when buying multi-family properties because the same first time home buyer programs can be used. Thus, greatly increasing the potential to make large amounts of passive income. One of the first properties I looked at when starting my house hacking journey was a 4 unit house bringing in 3,200 dollars a month. The mortgage would have been $1,300 and by living in one of the units, gross income would be $2,400. What would $1,100 a month do to your financial game? Would you be able to rocket out of debt? The house hack is the ultimate way to gain financial confidence.
The way to look at the house hack is to find and buy the largest asset you can possibly afford with the least amount down. This way you are taking full advantage of the powers of leveraging other peoples money for the greatest possible return. After all, the first time home buyer programs are typically only available once!
As a first time home owner the four unit can be a little intimidating, I get it. On my first house hack I found a beautiful two family home located right next to one of my cites most beautiful parks. This kept the area clean and attracts good tenets and friendly neighbors. The property has two 3 bedroom 1 bath identical apartments which command a premium in our rental market. This allowed me to have plenty of space for a roommate boosting the income of the property. Although, I don’t make a ton of additional cash flow living in it now, down the road this will be a money making rental. Currently, the mortgage is $1,200. I rent the downstairs apartment to a teacher for $900 and my roommate pays me $400. Altogether, it brings in $1,300 which covers the mortgage, leaving me with a cash flow of $100 a month and I am successfully hacking my way into a much better lifestyle. This strategy is so powerful within a few short years the house has increased in value close to 25% and I am able to buy a second property.
Is House Hacking the only way to get into real estate investing?
No definitely not. However, the house hack is by far one of the most powerful ways to get into real estate investing. Many of the best real estate investors like Grant Cardone or Robert Kiyosaki preach the benefits of using this method. To learn more youtube both of them or pick up their books, they have been invaluable to me! There are many other ways to get into real estate investing a lot of them require more money and knowledge. The house hack allows us to bypass most of the hurdles and get some experience owning a home. Brandon Turner from Bigger Pockets also provides some great information on the subject.
My life was pretty screwed up.. Once I applied this method among others in my financial journey, I went from $25,000 in high interested debt to virtually zero liabilities and a net worth of over $50,000. I can teach you the method of house hacking one-on-one to avoid some of the mistakes I made and have oversight into your money decision making process. Get specific help turning your financial life around by clicking the link below and get started with an individual mentorship!
Key Takeaways
1. House hacking is buying a piece of real estate to live in, taking advantage of first time and low down payment financing and renting enough of the property to cover the mortgage.
2. House hacking is one of the most powerful ways to jumpstart your financial foundation .
3. Both single family and multifamily houses will create successful house hacks.
4. House hacking is the most affordable way to get into real estate investing.
Pingback: What Should I do After Paying off debt? Use these steps to stay out of debt. – Foundation Investing