House hacking is a trendy term for a home purchasing model which is sort of a hybrid between investing and regular home buying. With the high cost of housing these days, it’s become a popular way for some folks who otherwise might not be able to afford it to get involved in real estate investment.
House hacking occurs when a homebuyer purchases a property and moves in as an owner occupant, and then rents out part of it. Typically most people start with a smaller multi-unit, such as a duplex, triplex or a quad — though it can be done with a single family home or condo depending on the configuration of the property.
Taking on tenants and collecting rent allows for some or all of the mortgage and expenses to be covered while you live there, so you build up equity and create cash flow. And then, when you are ready, you can do it again! This is a great and low-cost way to build a portfolio of investment properties.
Advantages to House Hacking
Owner-occupant purchasers qualify for the best loan terms, with better mortgage interest rates and lower down payments.
Learn how to screen tenants, lease, and manage your property.
Get to know your property inside and out.Learn through firsthand experience. Mistakes and issues always come up, and it’s easier to deal with them when you are onsite.
Start building your wealth through real estate, which has historically been one of the most reliable ways to make money grow.
Is House Hacking Right for You?
This is a very hands-on approach, and it may not appeal to everyone. You’ll need flexibility in order to buy a place with a plan to move out after a year or two. To be most cost effective, you’ll be directly involved with managing improvements, tenants and repairs and possibly do much of the work yourself.
And of course you have to be willing to live in close proximity to your tenants. Fortunately at least you have some say on who’s moving in!
Would you like to explore this option? Please schedule a call now and let’s talk about what kind of property might work for you.
House Hacking Real-Life Example
Suly Bolano, a cost segregation specialists living here in Denver, has been house hacking for three years now. She and her boyfriend are on their second property and they’ve made impressive progress.
They started with a six-unit building, which is now fully leased to solid, long term tenants. They made improvements to the tune of $60K, and it’s earning them a positive monthly cash flow of $800 — which will improve once an inherited tenant moves out.
Their next move was to a single-family house, where they currently live in the basement, which has a separate entrance, while renting out the upstairs. They’ve just finished improvements and are about to rent the mother-in-law suite. They’re projecting $9000 positive cash flow for this property in 2019, on top of living there for free.
Suly likes having control as an owner occupant landlord, and she hopes the tenants will stay for the long term. I was surprised when she told me the best place to find tenants is on Facebook Marketplace.
One interesting point she raised was how this whole endeavor has changed her mindset about money. She says she and her partner have become much more careful and conscientious about their spending habits. They putting so much work into their investment and this plan for the future that they appreciate every dollar — and spend more carefully now. Her boyfriend traded in his expensive car for a more modest model, and Suly doesn’t have a car. They’ll go out and enjoy life, but it’s easier for them to be frugal with long term goals in mind. So they’re not only building up wealth through real estate, they’ve also got more money to work with thanks to more careful spending habits.
Many thanks to Suly Bolano for the interview. She’s a lovely person and works as a cost segregation specialist at Titan Engineering. Cost segregation is a tax planning strategy which reduces upfront tax liability for commercial and residential investors. If you’re an investor, she’s a good person to know. Here’s her Linkedin profile if you’d like to find out more about it.
Ready to get started?
Interested in real estate investment or want to start a “house hack”? Let’s discuss your situation, budget, and the types of property that might work for you. Please get in touch here now. Look forward to talking with you soon.