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The Landlords Guide To Successful House Hacking

Very simply, house hacking is when you live in a property and rent out another part of it to cover your expenses. This could be a single family home where you rent out the spare bedroom, or it could be a duplex triplex or even fourplex. The main goal is to use the rental income to cover as much or even all of the expenses associated with owning the property meaning you get to live there for free while you build equity in your investment property.

This is one of the most common strategies utilized by investors to overcome the initial monetary barrier to real estate investing. There are numerous real estate investors who get started through house hacking. We have recently spoken to several experienced real estate investors in our podcast who did just this and now (10-15 years later) own multi-million dollar portfolios.

Housing is one of the biggest costs for every budget, if you can cut that expense then there is an opportunity to save a quite a large amount of money which will give you a head-start when it comes to building wealth.

House hacking is ideal for young homeowners who are willing to go through the extra effort to learn the ins and outs of becoming a landlord.

house hacking duplex

Why Should You House Hack?

The first big benefit of house hacking is, as I mentioned above, cutting your living expenses. There is a rule, the 30% rule which dictates that you should spend around 30% of your monthly earnings on rent. If you earn $2,600 a month then that’s $800 a month. According to the US Bureau of Labor Statistics though for most Americans, this figure is closer to 40%. And property costs are just going up. It doesn’t help that most people rent during their younger years where they also aren’t earning as much.

Cutting this figure down then means you will have more money to improve your quality of life and invest into your future. However, this isn’t the only reason this strategy is popular.

A Few Additional Benefits of House Hacking:

  • Build wealth in an asset. When it comes to renting, it is an expense that disappears monthly into someone else’s pocket. If however, you own the property then the money paid out goes towards a mortgage, it builds equity and wealth in an asset
  • Owner occupiers get better financing terms than a landlord’s investment property.
  • Small down payments. There are potential loans available such as an FHA loan which will only require 5% down as supposed to the traditional 20-25%.
  • Learn real estate investing. The best way to learn is always to do. House hacking is a sort of hybrid real estate investment which will allow you to live the life of the real estate investor which will set you up nicely for future investments.
  • The first of many. You don’t have to live in the property forever. Instead, once you’ve built up enough wealth you could move on to house hack a second house leaving the first as a cash flowing investment property. 

Successful House Hacking

You’ve probably heard a lot about the what and why so we wanted to take a look at a couple of real life examples.

We recently did a podcast episode with Gabriel Hamel. Gabriel Hamel started out by house hacking shortly before the 2008 housing crash. This was his introduction to real estate investing. He bought a three-bedroom house, rented out the spare rooms and lived in the property with almost zero expenses.

His key investment style following the 2008 crash was through seller financing. It’s important to note that he never would have made the leap to full-time real estate investor, built his portfolio and retired young had he not first shown both himself and others that real estate investing worked via first house hacking.

We have many investors who are house hacking right now.

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Creative House Hacking Strategies

Not every property in every location is suitable for house hacking, however, if you get creative there are plenty of opportunities to create some income from your property to minimize your costs.

House Hack a Single Family Home

To house hack a SFH you will need a multi-bedroom property. Then you need to find a tenant for your spare rooms. When selecting your tenant for your spare room, because you will be sharing a space with them you can be a little more picky in who you rent to. For example, if you’re a woman you might decide that you’d prefer a female tenant. In a traditional rental this would be discrimination.

Alternatively, you might consider using your spare rooms for short term rentals such as Airbnb. This way you could mark times (such as the holidays) where you don’t want a tenant in the property.

When it comes to renting out a room in your house, whether that’s through a platform like Airbnb or a long term tenant, it’s important that you are fully aware of the legal implications and abide by local and state laws.

Read: All About Renting out a Room in your House

House Hack a Duplex

House hacking a duplex (or triplex or even a fourplex) is a popular option. It means you don’t have to share your space with a tenant. Instead, you buy a multi-unit property, live in one and rent out the other(s).

Having full units attached to your own means you can command a higher rent than just renting out a room yet you can still reap the rewards of low-interest rate and minimal down-payments as you are living in the property.

House Hack Mobile Homes or RVs

If you found a property with a large outdoor area you could park a trailer, build a small home, or buy an RV to rent out on the land. It’s important that you do your homework with your local municipality if you think this might be an option you want to explore. Not all areas will allow this – for example, don’t expect this to be allowed in all suburban neighborhoods.

Rent out Space

When we say space this could be a parking space in your driveway. Check out pavemint.com or justpark.com. Alternatively, you might look at renting out garage space, shed space or even space for bicycle parking. Take a look at the company neighbor.com for more information on how this might work.

Live in Flip

The live in flip strategy is, as it sounds, where you buy a property that needs a bit of work done and complete the work on the property while you are living in it. Then you live in it for at least two years before selling it off for a profit, paying no capital gains tax on the first $250K of net proceeds ($500K if you’re married). The reason you have to live in it for two years is simply that it allows you to avoid paying a large amount of capital gains tax when you sell.

The reason this strategy is worth looking into is that it can be combined with other house hacking strategies. For example, you rent out a portion of the property even as work is being completed on other parts which will help you cover some of the expenses and costs of owning and renovating a property.

Listen to our Podcast Episode on BRRRR strategy investing with Matt McKeever.

RV house hack

A Word on Occupancy Limits: How Many People Can Live in A Property?

This question is more complicated than one would think as the answer depends upon state and local ordinances.

As a general rule, to determine the occupancy for a house, you can use the 2+1 rule. Each bedroom can hold two people plus one additional occupant. Using this guideline, a two-bedroom house that also has a separate living room could hold five people. Though the number may be smaller than that if the people are unrelated.

You can read the HUD guidelines here.

Occupancy is also reliant on a number of other factors such as:

  • Overall square footage.
  • Livable vs. uninhabitable space.
  • Septic/sewer limitations.
  • Age when child becomes an occupant (i.e., an infant is not counted as an occupant).
  • Municipal and state zoning laws.

Because of the number of factors which influence maximum occupancy rates, it’s difficult to determine a “correct” answer to the question; how many people can live in a property? So it is highly recommended to research your local and state laws around occupancy limits when thinking about house hacking to ensure you stay within legal guidelines.

Final Thoughts on House Hacking

House hacking is an effective strategy to get into real estate investing. It offers an opportunity to learn the ins and outs as well as enabling you to afford that first investment property. This is a form of entrepreneurship, so get excited and go hunt for an opportunity in your location.

Done well, this could be the first investment property of many and could prove an essential part of your wealth-building and investment strategies of the future. However, it is essential to make sure you have the right tools for the job to allow you to properly grow and scale your business.

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House hackingReal EstateReal Estate InvestingReal Estate Marketingreal estate porfoliorenting out a room in your house

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Ben Luxon

"Ben is an author and real estate enthusiast. His interest in all things entrepreneurial has led him to work with real estate professionals all over the world, distilling their knowledge into articles and Ebooks. His love of travelling has taken him to over 10 countries in the last year, where he has sampled the craft beer of them all."

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