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  • Writer's pictureTim White

House Hacking

Interested in getting into real estate but don’t have the money, time or knowledge? Consider “House Hacking”. Just like travel hacking, the same can be done with real estate. House hacking is when you purchase a property, and live in one part of the home while renting out another part (or parts). This can be done with both multifamily and single family residences.

Let’s say that you are interested in real estate investing, but you don’t know where to start – you don’t even own your own home. You also don’t have a lot of money saved up, so you’re going to need a mortgage plus a down payment. Although mortgages typically require down payments of at least 20%, there are several programs that will allow you to pay much less. One such option is an FHA loan that requires down payments as low as 3.5%. (Through the FHA program, I was once able to obtain a mortgage for only $100 down. See my previous post for more details.)

Once you’ve been approved for a mortgage, how do you start house hacking? The first step is to find a property. Neat rule: Most banks will consider apartment buildings under five units as a primary residence. That means the same mortgage loan you’ve obtained can be used to purchase a single family residence, could be used to purchase a four-unit apartment. If you’re able to find one of these buildings on the market for $200K, and you can rent each unit for at least $700/month, that leaves $2100/month you would be able to use toward the mortgage and utility payment, with the remainder going to cash flow. Using 50% for expenses (a good rule of thumb is that half of all rental income goes toward expenses), leaves you with $1,050/month. A property listed for $200K should be able to be picked for $160K minus your low down payment (because no one should pay full asking price), leaving you with a mortgage of ~$750.00. That leaves you with a return of $300/month and mortgage free!

This strategy doesn’t just apply to multifamily properties either. I personally use this strategy in my single family residence, by living in one bedroom and renting out the others. Historically, most would call what I’m doing as “having roommates”, but let me be hip for a moment! LOL. The income that I make from house hacking my primary residence allows me to pay my mortgage and clear extra funds as well. Plus, I am able to meet some pretty cool people and provide them with a comfortable, affordable, place to stay for much lower than they would typically pay by renting their own apartment. It’s a win-win for both!

This is the beauty of #HouseHacking.  One way to get started with this is via AirBnB. Use my link here to begin hosting.

Just a recap on House Hacking Numbers:

Property: $160K (Worth 200K so built in equity)

Down Payment: $5600 (3.5% of 160K)

Closing Cost: $3000 (It costs to borrow money, hopefully seller pays these)

Mortgage: $750 (With low down payments you normally get hit with PMI)

Rent: $1050 ($2100 minus taxes, insurance, maintenance, vacancy rates, etc.)

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