Want to know the easiest and the best way to get into real estate investing? House hacking! House hacking lets you have your cake and eat it too, except instead of cake – you have a place to live, and instead of eating it – you get money.
(I mean, the only thing better than house hacking would be to make money eating cake… which gives me an awesome business idea. But I digress.)
By the way, house hacking is NOT getting remote access to someone’s lights, stereos, and toasters, and then scaring them on Halloween with a mix of flashing light and creepy music. That would be a hilarious prank, but I’m pretty sure someone would end up in jail.
What is House Hacking?
House hacking is living in one unit of a multi-unit property and renting the rest of the units out.
What I Like About House Hacking
Aside from having an investment property and earning money, the thing I like most is setting limits on your own primary home.
These days, most people overspend when buying their house. Don’t be like most people. If you bought an investment property and lived in one unit you’d have more than enough space, and you’d save tons more money (by not having to buy the stuff to fill up all that extra space.)
Plus, multi-unit properties don’t even cost that much more than those huge McMansions, so you can really cash in on all that sweet mortgage leverage and appreciation.
Read more about:
Quadplex: 4 reasons you should take advantage of this real estate loophole
Why a Duplex is a Great Real Estate Investment Option!
Why Buy an Apartment Complex? 7 Reasons I’m getting in
House Hacking. How to Do It
You Need a House.
Start searching for multi-unit properties like a duplex, triplex, or quadplex. A quad is really the best house hacking investment property because it lets you gather the most rent while still being seen as a house (and not an apartment building) by the IRS and mortgage lenders.
But by all means, buy what you can find and what you can afford. You can always upgrade to a quad later!
Move Into One Unit.
The only way for this to count as house hacking is if you lived in one unit. So choose your favorite and move in!
Think hard about which unit you want. If you choose the best one – the one with the huge window and the self-flushing toilet, you might be missing out on some sweet rent. At the same time, if you choose the dingiest of the dingy spaces – you might drive yourself crazy living there unless you truly just need a place to rest your head.
Make It Nice.
It’s nice to think that just because you have an investment property it will generate income. But you have to make it attractive to tenants. Check out other listings and find out which features people are advertising.
Fully furnished? Private garden? Freshly painted? Find out what matters to tenants and give it to them.
If you put in mediocre effort, expect mediocre results.
Find Tenants for the Other Units.
It shouldn’t be too hard to find tenants in need of humble living arrangements. Fix up the other units, make sure they have reasonable kitchens and bathrooms, and start to advertise!
You can use sites like Craigslist to find tenants or ask realtors and property managers to help you. Just remember they always take a cut – to the tune of 1-month’s rent.
Avoid Prolonged Vacancies
Vacancies are a very annoying part of being a real estate investor. When a tenant moves out, you have to spruce up that place for the next tenant. And to pour salt in the wound – you’re spending that money while not getting any rent. Ouch.
So one solution would be to give up your place and move into the vacant apartment.
If you lived into one unit while fixing it up, you wouldn’t have any dead time between tenants. This requires some planning and motivation though. I wouldn’t blame you if you didn’t bother.
If Multi-Unit Properties Are Not an Option.
You don’t need to own multi-unit properties (like triplexes or quads) if you want to take advantage of house hacking.
If your home has a basement, you’re basically living in a duplex already! Just convert your basement to a nice little apartment. Or better yet, move into the basement and rent out the main floor. You’d get more money that way, and you’ll have fewer expenses.
This way, you still have a nice place to live, and you’re not living in a massive McMansion that does not bring you any money.
Is AirBNB Popular (And Legal) Where You Live?
AirBNB has really changed the real estate investing game (and then changed it again with flip-flopping rules, and then again with Covid.)
If AirBNB flies in your city – take full advantage of the short-term rental game! Buy some minimalist Ikea furniture and decorations for the other units, and you’ve got yourself another awesome source of income! Check the rules for short-term rentals in your municipality, but you may be able to take advantage of some loopholes since you’re actually living in the house.
And even if you don’t live in a hopping tourist destination, you might be surprised by the demand for a neat little place to stay. Sometimes parents need a little getaway from their kids or new homeowners need a short-term rental while doing renos. Don’t be too quick to write this off.
Bonus house hack – if you’re renting your house out on AirBNB and there’s a sudden rule change (as has happened in cities all over the world) you’re not stuck with an entire empty house and no way to pay for it. At least you’re living there while you figure things out.
Rinse and Repeat.
Once you’ve had a taste of getting rental income through house hacking, you can start to venture into other forms of real estate investing. Personally, I like investing in single-family rental homes, and I have my eyes set on buying an apartment building someday. But you’ll never make money from real estate until you take your first step.
House Hacking FAQ
What is house hacking?
House hacking is when you buy a multi-unit property (duplex, triplex, or quad,) and you live in one unit while renting the rest out.
Is house hacking legal?
Yes. House hacking is legal as you are renting out units in your own home. Owning a duplex, triplex, or quadplex qualifies you as a normal homeowner, whereas anything beyond that starts to count as an apartment building and is subject to different mortgage rules and tax codes.
How can I hack the house and live for free?
To “live for free” you would need to break your house into separate units and rent them out. For example, you could live in the basement and rent out the main floor. If the rent coming in covers your mortgage and expenses, you are essentially ”living for free.”