What Is House Hacking?
"House Hack" is a term that has been used more and more lately. What does it mean? How do you HACK a house? In this post we will explain.
House Hacking
House Hacking is a modern term for real estate investing. Many people cannot afford or qualify for a second mortgage to buy an investment property. A typical mortgage on an investment property needs 25%+ down, and carries a higher interest rate, making it difficult to save for as well as make the numbers work when you are paying the bank 5%+.
House Hacking lets you live free (or cheap) while your tenant or roommates pay all (or most) of your mortgage. You have options while doing this. You can live for free (or cheap) while paying the 30 year mortgage on a normal schedule, or you can do what many people are doing and pay the mortgage like you don't have roommates or tenants, then applying the rents as additional payments to accelerate paying your loan off.
Single Family Home House Hack
So along comes House Hacking. House hacking comes in many forms. You can buy a typical single family home and rent out the bedrooms to roommates. Say you buy a $150,000 3 bedroom 2 bath home here in Winter Haven Florida. Let's also say you use a FHA 3.5% down loan. Your mortgage (Principal, Interest, Taxes, and Insurance) would likely be in the $950/month range. Great! What next?
Roommates. Say you get 2 roommates for $400/month each. Thats $800/month. Now your cost to live in your house is $150/month (plus utilities, etc.) The next step is to do this for a year or two, then you can count your roommates rent payments as rental income on your next mortgage application.
Now you make a decision- time to move up in the house hacking world. You can either sell this property and use the equity as a downpayment on other property, or look into Multi family, and put a 3rd roommate in your first property and move on.
Multi Family Home House Hack
Single Family is great, easy to work with, but many people are over having roommates. Even if it is only for a few years to save for your next purchase. Thats where Multi Family Homes come into play.
A Multi Family home is a Duplex, Triplex, or Quadplex. These all qualify for traditional financing, and allow you to live in a separate unit, while having tenants instead of roommates. Once you go past a quadplex, you are no longer under conventional financing and things change.
Example time again:
Let's say you've found a great duplex for sale in an area you like, that would bring in good rents because its in a good school district, location, or has great amenities. It's listed at $250,000. Same FHA loan at 3.5% down comes to $1400/month (Principal, Interest, Taxes, and Insurance).
Next you either find yourself some tenants, or hire Haven Realty & Investments Property Management team to do it for you. If market rents for you unit are $1,200/month, you've covered most of your mortgage payment and are living in the other unit for $200/month.
The numbers scale if you do a triplex or quadplex, but you get the idea. Yes you have more to manage, but you are also pulling in more in rents.
Other ways to house hack
A third way to house hack is a little different, but still a similar idea. With the popularity of home sharing apps like Airbnb, VRBO, and Homeaway, people are buying home with a mother-in-law suite to rent out either nightly or weekly, or even renting a room in their own home.
Another option (if zoning, HOA, etc) allows is to build or turn an outbuilding into a rental.
This has its ups and downs, but is still considered house hacking. You must also consider if your property is in an HOA, and if they allow short term rentals in the community. Many do not.
So if you are looking to House Hack Winter Haven, give us a call at 863-333-5053 today to discuss what you are looking for!
Basically to sum it all up House Hacking is providing housing to other people in exchange for money that you use to pay the mortgage.