What is house hacking?
The term house hacking refers to the strategy of buying a property and using it as a primary residence while also renting out a bedroom, basement, or an additional unit of the property to someone else. Essentially, house hacking is a way for a homeowner to live virtually expense-free or have their mortgage partially covered by the money they receive from their tenants. The tenants may be short-term or long-term renters.
There are a number of different ways to go about house hacking. One way a homeowner can house hack is by purchasing a single-family home, living in the property, and then renting out a spare bedroom or the basement area of the home. Another way a homeowner can house hack is by purchasing a multi-family rental property, living in one of the units, and then renting the other units out to paying tenants.
The rent garnered would help cover the property’s monthly mortgage payment and any additional house expenses. In addition, check out some of the other key benefits house hacking provides to investors below.
- House hacking is great for receiving an increased cash flow from the rent that can be used to pay down the mortgage of the property or invested in additional properties.
- House hacking is an excellent opportunity for gaining experience as a landlord while learning about tenant screening, tenant management, rental contracts, dealing with unanticipated housing issues and repairs, negotiating, and more.
- House hacking is useful for building a resume that highlights the ability to successfully manage rental properties, making securing additional financing for future rental properties easier.
- House hacking serves as a great starting point for new real estate investors looking to build their wealth, knowledge, and real estate portfolio.
House hacking case study
The following examples serve as case studies for house hacking in action.
- Scenario 1: An investor buys a single-family rental property. The investor decides to live in the home while renting out the basement. The investor then uses the rent earned on this property to cover the property’s monthly mortgage.
- Scenario 2: An investor buys a duplex. The investor lives on one side of the duplex and then rents out the other side to a family. The investor then uses the rent earned on this property to cover monthly mortgage and utility costs.
The bottom line
When it comes to house hacking, the bottom line is that this strategy revolves around renting out portions of a primary residence with the intention of generating income that will offset the cost of the property’s mortgage and additional expenses. When house hacking is executed correctly, it allows an investor to live in their home virtually expense-free, though not necessarily hassle-free.
