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My Two Cents on House Hacking
House hacking is becoming an increasingly popular option for first time investors, those looking to grow their portfolio, or those simply looking to live for (almost) free!
There are plenty of great posts on house hacking, see https://www.biggerpockets.com/renewsblog/2013/11/02/hack-housing-get-paid-live-free/, https://www.auction.com/blog/what-is-house-hacking/, http://www.cnbc.com/2016/05/20/gateway-to-real-estate-house-hacking.html , https://investfourmore.com/2015/07/14/what-is-house-hacking-when-buying-rental-properties/
In a sentence house hacking is living in the property that you are using as an investment. You can house hack a flip by living there while you rehab it. You can house hack a multifamily property by renting out the units. You can even house hack a single family home by renting out the other rooms or using them for a service like Air BnB, but do it right and know your local laws.
House hacking is exactly how I got my first deal and I would recommend it to everyone, but there are some drawbacks! Many of those articles expand or repeat a lot of what I’m about to say, but I wanted to give a first-hand account of house hacking and what I’ve learned from doing it!
Pros:
- You live next to your tenants, when things break or there are problems you don’t have to go very far to fix them. This makes learning how your house works and how to do basic repairs a breeze. To learn how to do things YouTube has been a great resource. Just make sure to use it for mostly cosmetic stuff unless you have a friend that is a plumber, electrician, roofer, etc. I wouldn’t do anything on my own that puts my life or the life of my tenants at risk!
- You don't have to pay to live somewhere! Some people might think being a landlord is a drag, but if you have the right support it isn’t that bad. We have a class through the local community college that teaches you how to implement the right forms, screen tenants, and all the basics! I would highly recommend it. Also, you know what is also a drag? Paying rent and paying your mortgage. When you house hack someone else pays your mortgage! Very nice, you just gave yourself a giant raise!
- Tax advantages. I’d be happy to point you to someone who can discuss this at more length, but since you rent out part of your property you are able to deduct many of the repairs, depreciation expense, and other items to help save you money!
- You learn to be a landlord with training wheels. Since it is easy to keep tabs on your tenant you can better enforce the rules and manage the property. The tenants are also usually on their best behavior.
- Many financing strategies are far easier with a house hack, see: https://www.biggerpockets.com/renewsblog/2015/09/30/bought-rehabbed-rented-refinanced-14-properties/
- Side-note: With 2-4 unit properties you can get owner occupant financing and even FHA financing! This makes the cost to get into an investment property much much lower. Feel free to ask me about how we purchased our property with less than the conventional 20% downpayment and don’t pay mortgage insurance! I’d love to help you find the same sort of deal.
- Getting into an investment property. Some programs have first look periods where owner occupants can see and bid on the property before investors that will be using it strictly as an investment. This is your chance to get a hot property at a discount!
- Many many more! Reach out to me and I’d be happy to discuss my experience in more detail.
Cons
- You live next to your tenants. I know I know I said this was a pro! Well it’s also a con at times. Even though making repairs is easier it also make you way more available to your tenants. When they need something they can just knock. When they see you watching the TV in your unit they are wondering why you aren’t making that minor repair. Many tenants are great with boundaries, but the risk that they aren’t still exists.
- You also have to deal with the potential for a disagreement and possible eviction with the person living next to you. Be prepared for that. This is why tenant selection is critical! For my properties I make sure to pick only the best of the best applicants, especially when house hacking. I’ll be happy to help you with criteria that keeps you compliant with fair housing laws and also makes sure you minimize the likelihood of a nightmare scenario.
- You may have to live in a construction zone. If you purchase a property that needs a lot of work, you have to deal with that work being performed WHILE YOU LIVE THERE. For instance, this was our living room and how I ate breakfast for a couple weeks this summer:
- Tenants are the prime potential negatives, but if you treat them right and select the right tenants it can be extremely rewarding as well. You have the opportunity to be an AWESOME landlord that treats their tenants well.
All and all I think that house hacking is THE best way to get started, but it depends on your tolerance for other people. If the thought of managing tenants makes you queasy then consider a number of other creative ways to get into your first investment property! I’d be happy to help you with any questions and if I can’t answer them I will find the answer for you!
Best of luck!
Tony
Comments (3)
Hi Anthony,
Thank you so much for sharing the above information.My husband and I are looking into getting started with real estate investing and we're thinking of house hacking. You mentioned that you'd be happy to share how you purchased your property with less than the conventional 20% down payment and didn’t pay mortgage insurance! Would you kindly share how you went about that?
Thanks!
Mary Githui, almost 7 years ago
Tony,
Great post! I am just starting out in DC and am trying to find my first house to hack. The only problem in DC is that prices are so expensive. I found a duplex with 1bed 1bath per unit. I would live in one and could rent the other for at least $1200/month. The listing price on Redfin is $340,000. Using the 50% rule $600/month income and on a 4% 30 year loan, mortgage is about $1300. Sounds like I am $800 short right?
Thanks for your helpful information,
Daniel
Daniel Friedman, over 7 years ago
Hey Daniel,
When analyzing house hack deals I analyzed as if I was "paying" myself rent. So I would calculate as if your unit is making rent as well.
Anthony Angotti, over 7 years ago