House Hacking 101 (FREE Occupancy)

[Nathan Claire]

Expenses, liabilities, charges, fees, bills etc.
Whatever you want to call them, they hurt and we are always trying to find a way to reduce our costs. One of the largest expenses we face is often our housing payment. Most individuals pay for their property occupancy on a monthly basis. Whether this is rent or a mortgage payment, paying this down every month out of your own pocket may seem set in stone and something that is just part of life. However, this is far from the case. There are a few creative ways to save yourself from the pain of PITI or rental payment. These methods are known to real estate investors as "house hacking." The traditional way to house hack, would be through purchasing a multi family property and living in one of the units, while renting out 1-3 of the other units. The most affordable way to do this is typically through an FHA 30 year loan (3.5% down payment). This can also be done through a VA loan (0% down) but obviously not everyone qualifies for that. For example, if you bought a triplex for $150,000, utilizing an FHA loan you would only have to bring $5,250 plus closing costs to the table. This would mean you would be financing $144,750. Over 30 years at a standard interest rate of 4.125%, you would have a monthly payment of $701.53. Add in taxes and insurance and you'd be looking at around $900 a month in total costs. Now, you'll be occupying one of the units and will be renting out the other two. Hopefully these units are rent ready or already occupied, therefore needing no repairs. If these units were 2 bed 1 bath, here in Jacksonville FL market (depending on the area), market rent ranges anywhere from $600-1200 a month. With the triplex being 150k, this is probably in a lower income area so we will assume the rents to be $650 a month. Now you have $1300 a month coming in from the 2 occupied units. This will generate you $400 cash flow a month ($1300-900). In addition to this, you can now occupy your own dwelling for FREE. Your housing payment is now covered by your tenants and they will also be contributing to the pay down of the loan. Based on this example alone, I'm sure you can now see how advantageous house hacking can be. There are multiple ways to house hack, and another popular method consist of renting out multiple bedrooms in a single family home. With that being said, house hacking is definitely something to consider trying out if you're looking to eliminate your housing expense each month and potentially generate some cash flow on top.