Savvy real estate investors have always employed a wide range of strategies to maximize their return on investment. While some of these strategies are fairly rudimentary and straightforward, others can be quite creative and original. One such creative approach to real estate investing is the concept of house hacking. But what exactly is this strategy? And is house hacking worth it in this year’s real estate market? This blog will answer these two questions and expand on what makes it one of the most recommended real estate investment strategies for beginners.
Related: The House Hacking Guide for Millennials
What Is the House Hacking Strategy?
House hacking is a new name for an old and proven strategy. This is an investment approach that involves buying a rental property, living in one of its units, and renting out the rest to other tenants. This can be beneficial to a wide range of real estate investors and its relative simplicity has made it one of the go-to strategies for first-time multi family property buyers.
Your options when implementing the strategy
There are different methods by which you can house hack. Here are some of the most effective ones:
- Buying a duplex and renting out the other unit to a single tenant.
- Investing in a triplex or a fourplex and renting out the spare units to more than one tenant.
- House hacking with Airbnb by renting out additional rooms to short-stay tenants.
- Renting out parking spaces or storage in the garage or shed.
At this point, you are probably asking yourself, « Is house hacking a good idea?». In the next section, we will explain why we believe this approach to be the best strategy for anyone looking to get started in real estate.
Related: Wondering How to Live Rent Free? House Hack in These 7 Cities
Is House Hacking Worth It as a Real Estate Investment Strategy?
There are many advantages to house hacking. Young homeowners and investors, in particular, can leverage this real estate investing strategy to build wealth and increase their equity in a rapid manner. Here are the main factors that make it a tremendous option for real estate investors:
1- You can get cheap investment property financing
Cheap financing is one of the reasons why this strategy is a good way to get started in real estate investing. If you were wondering how to invest in real estate with no money, then you will be glad to know that house hacking offers you a simple way to do so. In fact, loans for owner-occupied rental properties tend to have low-interest rates as well as very little to no down payment requirements for first-time buyers. Federally-insured loans such as VA and FHA loans are particularly appealing for beginner real estate investors on a budget.
2- It allows you to live in a property with no costs
A major advantage of opting for this approach is the simple fact that it allows you to live for free while generating extra income for you. Renting out other units of a multi family property enables you to pay off your mortgage, offsets the costs of managing the property, and even adds to your savings after covering all the expenses. In some cases, the positive cash flow might even allow you to quit your job and focus all your efforts on your real estate ventures.
Related: How to Live for Free with the House Hacking Strategy
3- It can be a springboard to more advanced real estate investments
Another great thing about this real estate investment strategy is that it can offer a valuable learning experience to novice investors. Since the investment rental property is also your primary residence, you will get a close look at how property management and tenant relations are handled. The lessons that you learn will be of great assistance when you move on to more advanced real estate investments.
4- You get to pick your neighbors
Choosing who gets to live above or next door to you is a luxury that not many people are fortunate enough to experience. But if you house hack, you will have full control over who moves into your rental property. This is very ideal as it allows you to weed out problematic tenants and pick people that are compatible with your personality.
As you can see, the pros of a house hack are quite compelling. In fact, there are hardly any drawbacks to implementing this strategy if you are a beginner. After all, how can you beat living for free, generating extra income, and all the while your real estate equity is increasing? With that being said, you still need to abide by certain best practices if you want to house hack successfully. Below is a brief look at some of the tips that will help you succeed in this venture.
4 Tips on How to House Hack Effectively
As it is the case with everything in real estate, there are several pitfalls to avoid when you are planning to house hack. These 4 tips should help steer you in the right direction.
- Do your real estate market research: In order to hack your housing successfully, you do need to live in a profitable rental market. Do your research and find out the average rental income of multi family homes in your area.
- Find the right multi family home for sale: Not every multi family property will make for a good rental property. Remember, you need to produce positive cash flow in order to make this a successful real estate investing strategy. Use the proper tools to analyze multi family homes.
- Be prepared to work: It is important to remember that this is not a passive income scheme. Between working on the investment property to get it rent-ready, keeping track of rent payments, handling maintenance requests, and filing taxes, you will have plenty of tasks on your plate. Approaching this strategy as if it were a small business venture will help prepare you for these responsibilities.
- Screen your tenants properly: Whether you are house hacking a duplex or a 4-unit property, tenant screening is something that you should not take lightly. To avoid any issues down the line, make sure that the prospective renter provides all the documents that verify their employment history and previous living arrangement.
The Bottom Line
If you were on the fence regarding the house hacking strategy, then the points discussed in this article should be enough to convince you of its effectiveness. Use Mashvisor’s Property Finder and start looking for multi family homes for sale right now!
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