Getting ahead in real estate can be done by many different paths. Among the most clever strategies for those just getting started is house hacking. This strategy involves generating income with your first property as you build capital for further investments. It is also a valuable tactic that can empower a first-time homeowner to quickly become a successful landlord and real estate investor in just a few years of financial management.
If you are curious about how to use this strategy to kick off your real estate investment journey, we are here to help. This article will take a deep dive into the plan of house hacking, the benefits, how to start, and how to overcome the typical challenges of house-hacking your way to the top.
What is House Hacking?
House hacking can leverage your first property to generate income while you live there. A classic version of this strategy is buying a duplex, living in one half, and renting out the other half. On a larger scale, an investor might buy an apartment building, live in one unit, and rent the rest. However, the strategy also works when you scale it down.
You can rent a suite or a single room to a tenant roommate. Or you can get into vacation rentals as a host through travel platforms like Airbnb or VRBO. These methods of house hacking have provided a successful pathway for many people to turn their first home into an investment opportunity.
Advantages of House Hacking
House hacking is a popular strategy because it offers many different benefits, each contributing to the method’s overall success.
Affordability
First, house hacking can reduce or even cancel out your cost of living. Let’s say you’re renting half a duplex in a popular neighborhood. The rent might just be enough to cover your mortgage. Even a smaller sum from a rented room can significantly reduce your housing expenses.
Income Generation
You can also put the money you make from your tenants or guests toward income and profit. If your living expenses are already covered, every dollar in rent becomes a valuable source of income.
Hands-On Learning
For homeowners who dream of managing an entire portfolio of properties, house hacking is a great learning experience. You can practice all the skills required to be a good landlord while also living on-site to manage any problems promptly before they become a disaster. This is very educational when managing your property and dealing with tenants firsthand.
Scalability
Best of all, house-hacking is an excellent stepping-stone for future real estate investments. You can tuck your rental income into a savings account and soon generate the necessary funds for your next investment property purchase.
How to Get Started With House Hacking
The first step to house hacking is to prepare for investment. You might be surprised to learn that selecting a livable and rentable property is the last step before your strategy becomes profitable.
Research and Planning
Begin by researching local markets and property types. Come to understand property values and identify potential opportunities to buy low and rent high.
Financing
Ensure your finances are ready for the investment stage of house hunting and the steps necessary to landlord or host. Find financing options to fund your house hacks, such as FHA loans and more creative financing strategies.
Property Selection
Look for properties that split perfectly between your residential space and a welcoming space you can rent out. Homes with a central dividing door are ideal for small-scale house hacking, while multi-unit properties – from duplexes to apartment complexes – are ideal for a larger strategy.
Consider factors like location, property type, and potential rental income.
Overcoming Challenges
You also want to prepare for the potential problems that usually come with real estate investment. Tenants, legal compliance, and property maintenance all play an essential role in successful house hacking and the real estate strategies that lie beyond.
Tenant Management
Advertising for tenants, screening applicants, and taking good care of your tenants are all part of the job. You will need to prepare for harmful tenant types and favorable options. Good tenant screening can help protect your property and your sanity.
Be sure to remain responsive when maintenance calls come in. Tenants can be your first line of defense against property damage.
Legal Considerations
House hacking is, in its way, starting a home business. Be prepared to treat your investment and tenants like they were part of a business, not part of your home. It is essential to understand local housing laws, especially laws relating to rental and vacation rental regulations.
Property Maintenance
Expect to spend about 1% of any property’s value on maintenance. What isn’t used up during the year should be set aside to eventually pay for big things like water heaters and roof replacements.
Make sure to prepare yourself to answer tenant maintenance requests. It is your duty as a landlord and might be your last-minute alert before a pipe burst or worse.
Conclusion and Final Thoughts
House hacking is a helpful way to turn your first home purchase into an opportunity as an investment buyer. Make the most of your home by hanging a section of your property into a business venture. If you want to learn more about house hacking and how to find the perfect candidate properties, reach out to us. Consulting a real estate professional can help you take the first steps toward implementing your goal.
We can help you ensure you choose just the right property, like a multi-family structure, a du/tri/quad-plex, or even a home with a separate suite at the right price. With an in-depth knowledge of Denver and its neighborhoods, we will find you just the right place for your plans!
If you have your thoughts, questions, or experiences, we encourage you to share them in the comments below.