House Hacking: Explore The Benefits And See If It Is Right For You
It seems like there is a hack out there for everything. You can hack weekday dinners, hack your commute time and expense and now, even hack your housing situation. All this means is that the traditional way to do things is being turned on its head.
So many people are finding themselves on the outside looking in when it comes to home ownership. The days of being able to buy a house on a single income are long gone. In many areas even having two full time incomes is not enough. Home prices are up across the board, but especially in areas where the economy is good it is even more out of reach for some.
Which is why people are starting to think outside the box when it comes to buying a home. Those living in areas like New York, Boston and California need to get creative. Especially if they are blue collar workers that want to stay in the same area and not have to move to a lower cost of living area.
In this article, I will go over how and why you would want to house hack so you can realize your dream of owning a home.
Benefits of house hacking
With the high price of homes right now, a house is really an asset but a huge expense. And when all is said and done you end up breaking even at best if you decide to sell it once it’s paid off. Between the high mortgage, the taxes, maintenance and insurance, you may have been better off renting and using the savings to invest in index funds.
When you house hack, you end up buying a house with a section to rent out so you can save on your mortgage. If you have a double decker home, then you can live on one floor and rent out the other. In the right area, you may end up being mortgage free if your house can command enough in rent.
This frees you up to not only afford to live in an expensive area, but to also make investments so you can retire on time or even early. Putting the money you save from having a rental income into funds is a great way to plan for the future. Then when you sell your home when you retire, it is almost pure profit. Look into etf vs index mutual funds for the best system for you to be able to put your savings to good use.
When you are able to save considerably on a mortgage like this, it also allows you to live closer to a city center and not have as long a commute. In a city like Boston, for example, commute times can be over an hour each way even if you live within 25 miles of the city. On the other hand, buying a duplex on the edges of the city can allow you to take public transportation to the nearby downtown for work.
Then there are the write offs. You can save a lot of money on taxes since you are using the house as an investment and there will be plenty of expenses that can be written off as a result. Between the mortgage deduction and the expenses of maintaining a rental property, the savings can be quite substantial in lowering your tax burden.
Also, your fringe expenses are reduced when you have a house with a rental property attached. You’ll save on commuting costs as I mentioned. Plus, you could even go carless since you will be living closer to where you work potentially and save a lot of money that way.
Probably the biggest benefit is that you rarely need to put down twenty percent of the price of the house. Having a big chunk of cash like that is one of the biggest barriers to home ownership at the moment. Since many people are saddled with lots of student loan debt and high rents, it is difficult to save up for a deposit.
Having a rental allows you to put down far less and opens the door to home ownership.
How to find the right house to hack
The most obvious place to find an opportunity is in multifamily homes. In many areas this is a duplex or triplex style house that has an apartment on each floor of the house with an independent entrance for each unit. Usually a stairway connects all of the floors but you don’t have to enter any of the units to get to the next one.
These houses are in areas that are usually gaining in value as they become gentrified and offer up the conveniences of city living with a bit more space.
Another opportunity to look for is a house with a basement that allows for an independent entrance that can also be finished. Sometimes called in law apartments, they are simply basements that have been fitted with a kitchenette, bathroom and bedroom and are usually just small apartments. Perfect for singles and couples, you can set up a basement to be rented out easily. Or, if you are the one that’s single, you can stay in the basement and rent out the house to a family and make even more money.
If you have a large house that doesn’t allow for an independent entrance, then you should consider buying it and renting out the rooms. You’ll have to be ok with having roommates, but it may even make living more fun. If you are a social type then living alone might not be for you anyway. This brings in extra cash and you could make some new friends in the process.
Whether you are looking into the FIRE (Financial Independence/Retire Early) movement or are just looking for the opportunity to own your own home, then house hacking is definitely something that you should be looking into. There are many ways to go about this so you have options for which works best for you.