House Hacking: One Way to Start Investing in Real Estate

Discover how house hacking can be one way to start investing in real estate.

The real estate industry has enjoyed constant growth over the past few decades. According to Statista, its total revenue could reach well over $14 billion by 2030. It’s a 4.8% growth rate that can be attributed to homeowners learning mortgage-offsetting methods like house hacking.

While house hacking isn’t new, its application is becoming popular. More people are slowly applying it to their mortgage repayment plans. As a prospective homeowner, given housing costs today, you may want to think in that direction.

What is House Hacking?

House hacking refers to the practice of making your house a revenue-generating asset. Traditionally, this means purchasing a small multi-family property and renting out part of it.

The money collected from the tenants is used to pay all or part of the mortgage. As such, the homeowner can build equity while maintaining their property.

When done correctly, you can easily live in an expensive house at a low cost. Some people can even generate a small income from their home ownership.

Another reason to consider house hacking is the favorable mortgage rates that come with it. Since you’ll live in one of the units, financial institutions will view the property as owner-occupied. As such, you can enjoy lower mortgage rates than you would if you purchased a commercial rental property.

Tips to Consider when House Hacking

You’ll need a sound strategy to fully enjoy the benefits of house hacking. Here are some tips to keep in mind.

#1 Understand all Available Financing Channels

Research all available financing methods before commencing your project. This way, you’ll know which option best fits your needs and long-term repayment plan.

FHA and VA loans are government-backed, which minimizes risks for banks and mortgage lenders. As such, they offer better mortgage rates than their conventional counterparts.

VA-backed loans allow you to receive 100% financing on your property. VA loans may not require mortgage insurance.

#2 Search for the Right Property

Your next step is to find a property that meets your house hacking strategy. It should be good enough for you to live in and to attract potential tenants. Remember, most house hackers eventually rent out their primary residence. So, it would help to choose a home perfect for prospective tenants from the start.

Another factor to consider is the neighborhood. Find a property within an area attractive to your target tenants in terms of security and monthly rent.

After finding your desired property, you can start preparing it for your project. But first, make sure it’s ready for renting before you start looking for a tenant.

#3 Find your Tenant

It’s vital to understand all relevant regulations. The Fair Housing Act and landlord-tenant laws guide your social and financial relationship with your tenant.

Once you’ve learned all the regulations, determine the criteria you’ll use to qualify a tenant, which may include income-to-rent ratio and credit score.

The next step is to scout for potential tenants. The best way to do that is through real estate internet marketing. List your house on social media and real estate websites.

You’re likely to receive several applications after listing your property. Review each of them by conducting a background check on the prospective tenants. The tenant’s employment history may be one of the most important factors, as it indicates the risk level.

Closing Points

House hacking is a popular way to offset a mortgage, and you’ll begin learning how to generate revenue from real estate investing.

 

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Christy

CHRISTY ALMONTE

Real Estate Specialist

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