Buying your first home is exciting! You have a place to call your own. However, your property does come with expenses. Sometimes you may need an additional source of income to help you out. This is where house hacking comes into play.
Benefits of House Hacking
House hacking is when you invest in a property and rent part of it out. The additional income is one of the main draws. The money can help pay off your mortgage and cover utility costs. You can also receive tax breaks and deductions. Plus, you build up free equity as your house appreciates in value over time.
Along with the economic benefits, house hacking also provides a greater sense of flexibility. Suppose you need to transfer for work. You can still keep your property while earning rental income.
How to House Hack Successfully
With the economic and personal benefits, house hacking can help you live more comfortably. Here are some tips to get you started on your house hacking journey.
1. Figure Out Your Finances
As a property owner, you’ll have access to loans and home-buyer assistance programs. The Federal Housing Administration loan is for multi-unit properties. This type of loan protects you from mortgage defaults. It requires a 3.5% down payment and is helpful for those on a budget.
Along with investment costs, be sure to factor repair expenses into your budget. Your home will require regular maintenance to keep it in top condition. You also want to save up money for emergency repairs, such as a leaking roof. Consider putting aside part of your rental income each month for these expenses.
2. Find a Property With Potential
When purchasing your multi-unit home, pay attention to the location. Having a property in a desirable neighborhood increases its value and attracts potential tenants. Areas with low crime rates, properly maintained houses, and lively communities tend to attract more buyers. Also, consider what local amenities are nearby, such as grocery stores.
To help you find the best residence, consider working with a real estate agent specializing in multi-unit properties.
3. Know the Local Rules and Regulations
Before you can start renting out your home, research your local zoning laws. This way, you’re prepared to make any adjustments to keep your house up to code. There are also regulations, such as the implied warranty of habitability, to ensure your rental property is safe and liveable for your residents.
4. Rent Out a Single Unit
One of the more traditional ways to house hack is to invest in a two-or-more-unit home. You then live in one unit and rent out the others. The rent from your tenants helps to cover the majority of your mortgage. You may even want to live with a roommate to provide an additional source of income.
If you want to avoid certain tax deductions, consider a 1031 exchange. This is when you exchange one property for another, allowing you to defer capital gains. Keep in mind that you have 45 days to identify the new property and must close within 180 days.
5. Rent Out by Room
If you don’t want to invest in a multi-unit home, consider renting out individual rooms of your home. This works well with homes that have at least four bedrooms and two bathrooms. You can have one bedroom for yourself and rent out the others.
Single-family homes also tend to appreciate quicker than multi-unit properties. This allows you to have a more significant ROI when you sell your house.
6. Live in a Trailer and Rent Out Your Property
If you enjoy simple living, this is a good option. You can rent out your whole residence while staying close by. It also allows you to have your own space separate from renters. This is also perfect for those without families who don’t want to pay for house maintenance.
7. Try the Live-in Flip
This is where you purchase a home that needs some TLC. Unlike a traditional house flip, you live in it during the renovations. Flipping your home can increase its resale value by adding new features to attract potential buyers. Consider updating kitchen appliances or repainting walls.
While fixing up the home, you can rent out part of it. When looking for tenants, make sure to get to know them. Ask them questions about their employment status and past rental experiences. Having extra cash flow can also help pay for the remodeling expenses.
Earn Some Extra Cash With House Hacking
Renting out your home can provide you with an additional source of income. This can help to pay off your mortgage and other expenses. However, there are multiple ways to go about leasing your space. Consider these tips for taking your house hacking to the next level!
We hope you found this blog post House Hacking: How to Make Money From Your Own Home useful. Be sure to check out our post Renting Your Home Out: Pros and Cons for more great tips!
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