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Your initial thought, of course, is to say that it is an asset. This makes sense and your house is truly worth something and considered an asset, however you need to think of your house as a liability in the fact that the expenses and opportunity costs associated with where and how you live. Your house is costing you money each and every day.
Paying Money for Housing:
When entering the "real world", that be after high school or college when your parents say, "okay your a big kid now" you first think that you need a job, and then of course you need a place to live. Often times most young adults end up renting a apartment/condo/house and starting their careers working their way up the corporate ladder in the "rat race".After settling into their new job they think of home ownership and start looking online for "starter homes". Lets take a moment and define what the term "starter home" is really implying. A starter home is implying that the house your looking for is just good enough to get you started. It might be smaller, not have as many features, or not in the "perfect neighborhood". It is also implying that you will only live there temporarily and then soon after move onto a bigger/better home. This bigger better home is bound to cost more money right?
Why would you want to spend more and more money on your own housing as this "starter house" mind set would imply? A true investor of real estate would not want to spend more money on their own housing, but would want to spend less and invest more into a property that can bring n rental income. Thus is where the idea of house hacking was born!
What is House Hacking?
The idea behind house hacking is simply to decrease or minimize your own expenses and use the spread (money you are saving) to invest into acquiring properties to rent out. Living in a nice house with a indoor swimming pool and movie room is great and all, but that house isn't making you monthly cash flow, its costing you monthly cash flow. |
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The basic idea behind this "house hacking" mentality is to simply rent out part of your home to another person, or co-exist with another person as a roommate in your own home. Also it can mean selling your primary residence now and buying a multifamily property and living in one of the units while renting out the rest. Basically when it is all said and done you are renting what you already live in, to decrease your monthly expense to save capital for your dreams of real estate glory!
How to Get Started With House Hacking:
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Getting started sounds easy, you already own the property so all you need to do is rent it out and then your done. This is the basic idea yes, however you should read this article (
You need to need to put together a process. How will you advertise to get a renter? How will you screen that renter? What type of boundaries will you setup in your own house, will the renter only have access to the basement and not the rest of the house? How will you collect rent from them? Do you have a lease agreement? What happens if you don't like them and want them to move out?
Once you get a good idea on how you will do the above process of finding someone and managing your home. You need to go out and find a renter! This can be done on sites like Zillow or craigslist by posting a for rent AD. That's basically it, your now on your way to house hacking.
House Hacking with a Multifamily Property:
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If you have yet to buy your first home, or if you want to sell your home now to get into real estate a multi unit property might be the right fit for you. By buying a multifamily home you can live in one of the units and have your tenants pay all of your expenses!
For example, if you buy a 4 unit, live in one unit, and rent each of the other units out for $$600 a month, that would mean your making $1800/month in rents. If your loan, escrow (taxes + insurance) utilities, and other expenses come to just $1600 – you could get paid $200/month just to live in the home. Even better when it comes time to move out into your future home, you can rent that 4th unit out for even more income. Sounds like a great idea right?
The real issue with doing multifamily house hacking is that you need to find a good deal. These type of good deals where 3/4 of a 4 unit property can support the whole property and then some are generally few and far between. Often times you as an investor will get picky, because you are living there so you might not like the property even if its the good deal! At the end of the day remember you are saving for your future and cutting your expenses, so making some sacrifices now can pay off later!
If you want to just start looking, you can also use sites Zillow or Trulia and start looking at properties. You have the ability to filter your searches to only multifamily properties with these websites. Start looking at the cheapest properties in your area and try to find neighborhoods that you would want to live in. Don't be afraid to live in something a little "ugly". You are building your future.
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America's Favorite,
The Small Time Investor
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