If you own a home and want to start saving more of your money for retirement, you could look into house hacking, which is a strategy that allows investors or homeowners to rent out their property to receive rental income. If you’ve been interested in real estate investing but don’t have the funds necessary to purchase a second property, house hacking may be the right option for you and is possible even if you have yet to purchase a home.
By using this approach with your primary residence, you’ll gain a passive income stream that can be used for vacations, put into savings, or placed into retirement accounts. House hacking requires you to act as a landlord, which is why it’s highly recommended that you learn more about house hacking and what it entails before taking advantage of this strategy. This article offers a comprehensive guide to house hacking and what mistakes you should avoid.
House hacking is a relatively popular investment strategy that involves homeowners earning rental income by allowing tenants to rent out part of their main residence. If you don’t want to go through the trouble of investing in a multifamily rental property, house hacking with a single-family home is possible. This strategy involves renting out one or more rooms in your home to tenants who need a place to stay on a short-term or long-term basis.
If your garage has been fashioned into a living space, you could set aside this area for renters. You could also rent out one or two of the bedrooms in your home. Yet another option involves building a small structure on your property that would act as a “guest home” for tenants. Whether you currently own a home or are getting ready to purchase one, you can take advantage of house hacking and the many benefits it provides.
If you want to slowly get into the real estate investing business, house hacking might be a good solution for you. The primary benefits associated with house hacking include:
If you’re looking to buy a new home that you can use for house hacking purposes, the timeline for purchasing a property can be anywhere from 2-5 months depending on how quickly you find the home and how long the closing process takes. If you want to know how to successfully hack a property, all hacked houses follow the same general steps that are detailed below.
Before buying a home, you should first learn about the financing options available to you in this situation. Since you’ll be the owner-occupant of the property, you will have access to various conventional loans as well as assistance programs if you need help gathering the funds needed to make the purchase.
If you are set to live in a portion of the property, it should be easier for you to obtain great loan terms. For instance, FHA loans allow for minimum down payments of 3.5% of the total sale price. You could also use the BRRR method to get ready for house hacking, which involves buying, rehabbing, renting, and refinancing a home.
If you’re searching for a multi-family or single-family property, you should focus on buying a home that will facilitate a renting situation. As such, the property’s location will be essential. The location of your home determines what the rent price will be and how desirable the property is to potential tenants. Additional factors that tenants care about include access to local amenities, population growth, and job growth.
There are some additional aspects of the property that you should focus on during your search, which include:
The next step in this process involves making an offer on the property you’re interested in. Make sure that you crunch numbers on what it will take to generate income when renting out a portion of your property. You can use the Roofstock Cloudhouse calculator to obtain a better idea of what your return will be when renting out your property. Once you enter the property’s address, you’ll be given a detailed forecast of possible returns with metrics like gross yield, cash flow, and cash-on-cash returns.
When you purchase a home for house hacking reasons, you’ll also be tasked with paying closing costs, which typically amount to 3-5% of the total loan amount. You must also make a down payment, which could be anywhere from 3-20% of the sale price. Some of the fees that are included in closing costs extend to:
Once you’ve moved into your new home, you’ll need to prepare a portion of the property for renting, which may involve making repairs and updates to the home.
The fifth and final step in this process involves finding a good tenant, which doesn’t need to be too difficult. Before you begin your search for a tenant, make sure that you read the landlord-tenant laws in your state to avoid a situation where you break the law. You can effectively screen potential tenants by:
Before you engage in house hacking, there are some useful house hacking strategies to consider as well as some common mistakes you should do your best to avoid.
Some of the most common house hacking strategies include:
While house hacking is a legitimate strategy that can help you build wealth and create a passive income stream, there are some mistakes that you should avoid if you want the strategy to go according to plan. Once you’ve bought a property, there are several things you should do to protect your investment. The most common house hacking mistakes that you should do your best to avoid include:
If you’re searching for a new home and want to begin investing in real estate, house hacking may be the right move for you. By renting out a portion of your home to tenants, you can reduce your monthly expenses and start building your wealth.
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