Watch Your Cost Of Living Drop When You House Hack!
Cost of living is an important component of your personal financial picture.
Whatever your income, your cost of living directly reduces your bottom line as you spend on living expenses. For most people, the cost of shelter is by far their largest expense line item.
House hacking is a real world way to reduce that important expense line and grow equity in real estate at the same time! The basic idea of house hacking is to purchase a multi-unit property and live in one unit while renting out the remainder.
If house hacking is a new idea to you here is a look at the benefits of house hacking.
Benefits of House Hacking
I’ve already mentioned the first big benefit of house hacking. It can reduce or eliminate your housing costs, which are a major part of most personal budgets.
A U.S. Bureau of Labor Statistics report for 2015 shows that 19.2% of the average U.S. household’s expenses were dedicated to shelter. The actual number was $10,742 per year or $895 per month on average. Canadian households’ average shelter expenses were even higher at 28.9% of household expenses. The actual shelter expense in Canada was $17,509 per year or $1,459 per month. Of course, these expenses will be much higher than these quoted figures in some locations, which makes house hacking even more important.
But there are other benefits to house-hacking. Here are just a few:
Occupants get the best financing terms –
Owner occupant financing has lower interest rates and more attractive terms than investment financing. If you keep the property as a long-term rental, this is a huge benefit because you can keep the owner-occupied loan in place even after moving out.
Smaller down payments are possible –
As you’ll see in the section on financing your house hack, smaller down payments of 0% to 5% are possible with programs like VA and FHA loans. Typical investment loans require 20-25% down.
Learn how to invest in real estate –
House hacking is a hybrid of a residence and an investment. You live in the property while learning to invest. Everyone makes mistakes while learning, but it’s easier to recover when you’re on site and personally involved.
Smooth transition to rental properties –
When you live in a property, you get to know it well. You also get to know the type of tenants your property attracts. So, once you move out you will have an increased comfort level with the property and your tenants as a landlord. With your low-interest loan, you’ll likely also make the best possible cash flow from the property once it’s fully rented. – Coach Carson
Learn About House Hacking
Now that we see some of the benefits, here is a clear explanation of house hacking and a look at the most important things to keep in mind as you consider this financial technique.
What is house hacking?
Although there are several ways to house hack, the most common way is to buy a duplex, triplex or fourplex and live in one unit while renting out the others.
My first experience in “house hacking” was during college when I rented a four-bedroom apartment for $800 a month in Olympia, Wash., and rented each bedroom out for $400 a month. I quickly discovered that I could make even more money by renting out my bedroom and sleeping on the couch. Now, I don’t recommend this, but for a poor college kid, I was getting paid to live for free.
Later, I purchased a duplex for my wife and I to live in. We stayed in the small one-bedroom home in the backyard and rented the larger house out. It was during this time that I seriously began building up my real estate investing business, thanks to my incredibly low cost of living. I was able to quit my job and go full time into flipping houses and buying rental properties.
The most important consideration for house hacking.
House hacking can be an incredible way to decrease your expenses while increasing the cash you can invest in your business. However, house hacking can also be dangerous if you don’t buy the right property.
This is why I insist on you taking the time needed to learn how to analyze a real estate deal. Make sure it’s actually going to produce the results you want. Because, simply put, most properties are not worth buying. Just because it is a duplex or a large house doesn’t mean it’s going to allow you to live there for free. You have to shop smart, run the numbers carefully and know what you are getting into. – Entrepreneur
Have you ever considered house hacking?