Table of Contents
- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
Introduction
In today’s world owning a real estate property means having an opportunity to gain profit.
As we all know that property values increase every year, and a homeowner has the potential to good earn a profit by selling the property in just one year. However, selling is not the only way to make money in real estate.
One of the most popular ways to earn a good amount of money is called house hacking. In this post, we will understand what is a house hack and how it works in detail.
What Is House Hacking?
A house hack is an investment strategy where you buy a home with a low down payment mortgage and then put a portion of the home on a rent to generate income.
Many homeowners use it as a long-term investment plan to earn money and cover mortgage payments, and other housing costs.
In this type of strategy, you buy a home with a low down payment that you can later turn into an investment home.
House hacking is a way to temporarily reduce housing expenses, or it can be considered the start of a career as a real estate investor.
In any case, with the high cost of housing, it is a method of using the valuable property that you already have to live in, save money, or even buy real estate for investment, all this while you are building equity in your home.
How Does House Hacking Work?
A house hack can be easily done by acquiring multi-family properties that have up to 4 units.
Multi-family houses (up to 4 units) are more adequate for such a strategy as they provide more space to earn money and can be bought with minimum down payments.
Even though these multi-family houses have up to 4 units, they are still considered “single-family dwellings” as per lending standards.
As a house hack, you buy a multi-storied or multi-unit residential property to live on one floor or unit and rent the other floors or units.
This allows you to take advantage of FHA loans, which require as little as a 3% to 3.5% down payment on the primary home.
After you close your loan, you move into the house, rent out the other units, and use the rent money to pay off your mortgage and cover your other housing costs.
What Are The Different Ways Of House Hacking?
Let’s take a look at some common ways to house hack and earn money.
Buy A Multifamily Home
Any property with more than two units is a benefit, and more units have better chances of getting more profit.
This means that triplex is generally better than duplex and quadruplex are better than triplex.
Look for multi-family homes, then research those properties to find out which will have the lowest housing cost.
Remember the intention of using this strategy is to lower your cost as much as possible, and not to buy the best house.
Multifamily properties have been designed to shelter this strategy; hence it is best to look for one if you plan to house hack.
When it comes to analyzing them, there are a few things to keep in mind. First, check for the zoning and homeowner association rules if they allow renting the portion of your multi-family home.
Rooms For Short-Term Rental
If you don’t own a multi-family home and are sure you like the idea of committing to a long-term lease of any part of your current home, you can start a real estate investment career by offering additional rooms to guests on short-term rental platforms such as Airbnb or Vrbo.
For those who are currently thinking of buying a multi-family home for short-term rental purposes, financing is available for Airbnb rentals.
Be sure to check the short-term rental laws in the state and county where the property is located, and if the property is part of a homeowner’s association, be sure to familiarize yourself with their rules before renting.
Most HOAs restrict short-term and long-term rentals in their areas.
Additional Dwelling Units (ADUs)
An ADU is an acceptable addition to a home, usually in the backyard, where plumbing, electricity, and other essentials for a living are located. These are also called “guest houses”.
An ADU is a space that can be lived in or rented out to generate additional income. ADUs are a great asset to look for in a House Hack tool.
Whenever you search for properties with ADUs, keep in mind that not all ADUs are approved.
You can check with the local department to see if any permits have been issued and if local laws allow you to legally rent the space. If they are approved, it’s a great property to use as a house hack.
Conclusion
Eventually, whether to use house hacking for your property is a decision that you have to make as a homeowner and could depend on various life situations.
While this could look like a good option to earn some additional income, make sure you do your complete research on the property location, and local and HOA laws before you decide to use the strategy.
