House Hacking. Is it legit? Or just a tic-tok trend? 😂

Are you one of the many American's who desire to wither purchase your first home, or your first investment property, but you just cannot see how the numbers pencil out to make it happen? 

That's where "House Hacking" comes in. In short, House Hacking is when you utilize your primary residence as income generating property. 

Here are a few examples of what this might look like. 

1. List your own home on short term rental sights and vacate when someone wants to rent it (maybe you crash with a friend or family member while your home is rented out). 

2. Add an ADU to your property that can be rented out either long term or short term while you live in the main house. 

3. Purchase a property that already has 2 homes on the same lot and rent one of them out. 

4. Purchase a multi-family property (duplex, tri-plex, quad-plex); live in one side and rent the other out. 

5. Rents rooms out in your house to other people while you also live there. 

So why would you do this? 

House Hacking is a great way to get your foot in the door of owning real estate when you may not be able to otherwise. I actually utilized this method to purchase my first home; although I didn't know this term then. I was living with roommates after college and realized if we were all going to be paying rent, I may as well be the landlord. So, I purchased my first home with only $1400 out of pocket (using a down payment assistance program) and we all moved in. At that time, although I could qualify for the mortgage, it would have been a major financial stretch for me to cover the mortgage and maintenance of a home by myself, so having roommates was a huge help. 

In especially expensive areas of CA (Think San Diego, Tahoe) many people look for the opportunity to purchase two homes on one lot so that they can live in one home and rent the other out. This can make purchase a home possible when it might not otherwise be, while retaining privacy by not renting rooms in the same home you're living in. In areas that allow short term rentals, this can be especially lucrative and often cover the entire mortgage payment. 

What's the catch? 

The magic that makes this all work is the fact that mortgage banks will allow you to claim a residential dwelling with 1-4 units as a primary residence, therefore allowing you to finance the property with much more advantageous guidelines/ requirements than if you were getting an investment loan. This means you'll have access to much better interest rates and low down payment options than if you were purchasing an investment you would not be living in. 

The downside? You're a landlord. That's not an easy job and certainly not the right fit for everyone. Sure, you could hire a property management company but that will eat into the rental income and make the numbers of it all less favorable. 

How to House Hack to the Max

If your primary goal is to utilize house hacking to get into owning investment properties without the struggle of saving up a large down payment and paying high interest rates, here is how I'd do it. (And probably what I would have done back when I purchased my first home at 22 if I had known what I know now). 

Purchase a four-plex. That's one property with 4 separate units. Live in one of the units for one year to satisfy the banks requirement of it being my primary residence, then rent a room in a friends house or a cheap apartment so I could rent the final unit of my four-plex out. Make sure the math works for those four units to generate enough rent to cover the mortgage and maintenance costs of the property and now you have your first multi-family property paying for itself. 

As equity builds in the property, borrow money against it to purchase your next property. Soon you can own a handful of properties that are paying for themselves and hopefully enough extra to cover the mortgage on the home you choose to live in.  

Of course, this method requires real commitment to being a landlord and all the stress, risk and chaos that come with it. Many people have made a lot of money working a system like this and many have lost a lot of money. It can be addicting and next thing you know you've built a giant house of cards that's just waiting to fall. 

I don't wish I had working an on-going system like this, but looking back, I would have liked to have purchased a multi-family property as mu first home and kept that one to have as an income generating asset today. 

If you'd like to chat more about the various ways to House hack and if they may be right for you, hit me up! I'm always happy to help you process  through the numbers and make a plan. 

Zach 916.367.8917