We all have heard the term “hack”, which refers to a shortcut or unique way of doing something that we’ve all been used to doing one certain way. Well, now there’s a term called “house hacking” and as you guessed it, it’s unique and creative ways to find the perfect house. The Internet loves the word hack because it means there is a creative or inexpensive shortcut to solve a common problem. If you’re looking to break into the real estate market but are unsure of how to do it or are intimidated by the big guys, house hacking is a really great alternative.
House Hacking Is This a Thing?
House hacking is the act of turning your investment property into your primary residence, rather than the other way around. This means you might convert a single-family home into a duplex or rent out a bedroom but it typically applies to multifamily properties where you buy the entire complex, live in one property, rent out the rest, and are virtually mortgage-free. This is been done by many people the prefer to stay away from the quick flip option. Of course, there are some risks involved and if you end up with a money pit you may end up putting more money into the property and you’re getting out of it, which of course, defeats the purpose of house hacking in the first place.
Let’s put this into practical terms: the average household salary is about $75,000. Americans spend about $20,000 on housing or 27% of annual pretax salary. Should you not have to use that $20,000 for housing expenses, you could be investing that, buying more property, or essentially, doing whatever you want. RealtyTimes.com recently had a breakdown of how house hacking would work when you live in a part of the property.
• Four-plex property: $220,000 including closing costs and repair credits
• Cash to close: $10,000 including the down payment, property inspection, and $3,000 in additional repairs
• Monthly rent from 3 units: $2,000
• Monthly mortgage payment: $1,400
• Monthly cash flow: $600
• Budgeted expenses: $600
• Final Income: $0
• Money saved from not paying rent: $8,400 per year
In this case, the owner is not necessarily making money but they’re not paying rent or a mortgage either. They can invest that extra money into stocks, bonds, or even a down payment on another property. So what do you need to utilize this type of hack?
- Multiunit investment property
- Affordable down payment options,
- and a low fixed-rate mortgage.
You want to look for a property that’s below market value as you can build instant equity. Look for a property where the total rental income is at least 1% of the property’s purchase price. By using the property as your primary residence you can also get better terms and lower interest rates.
For more information on finding the ideal investment property for this type of “house hack” start your search here or simply contact my office with your needs and your budget and let me do all the heavy lifting for you.