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What is House Hacking?

Duplex for house hacking
Duplexes are commonly used in house hacking but if you can pull it off with a triplex or quad, even better!

What is house hacking? A year ago I was asking the same question. It sounds like it could be some type of phrogging. Must be those millennials making up new phrases again. Technically, I’m a millennial, barely. Which begs the question, how did I not know about house hacking?

Then I joined a local real estate investor Facebook group and everyone was talking about it. Instead of purchasing a cookie cutter single family home, all these first time home buyers are looking for a house a hack. House hacking is the newest trend, especially if you have an interest in becoming a real estate investor.

It may be a trend, but house hacking is nothing new

House hacking is nothing new. People have been doing this for years. Many of them by accident. It was also common for single family homes to be converted into multifamily dwellings. However, municipalities have taken more of a stand on this recently, especially in lower income areas where more single family home zoning is encouraged.

What is house hacking? House hacking is the act of buying a multi-family property and occupying one unit while renting out the remaining unit(s). This property could be a duplex, triplex, quadraplex or any multi-unit property. Simply put, you get to invest in real estate and have your tenants pay your mortgage.

Can house hacking cover all expenses of owning the property?

In many cases, the rental income you make from house hacking will cover all of your expenses, including mortgage payments. You heard that right. You can basically live for free. If you buy right, you’ll even put some extra money in your pocket every month. Assuming your tenants (or friends) pay their rent, of course.

If you plan to finance your house hack you will need to come up with a down payment. There are other acquisition strategies such as the BRRRR method where you buy at a discount, rehab, rent, refinance and pull a lot of your cash back out. In many cases, you can pull enough cash out to cover the entire down payment on your next deal.

Are there any downsides?

While the idea of living rent free sounds great, there are some downsides. You will become a landlord and be responsible for collecting rent and the overall upkeep of the building. In addition, you will share walls with your neighbors. If you have a family or enjoy privacy and quiet time, house hacking may not be the best option for you.

If you do choose to house hack, make sure you property screen any potential tenants and verify employment. Check references and call previous landlords to make sure they took care of the property and paid rent on time.

Is House Hacking For You?

My answer is always the same. It depends on what your goals are. If you have aspirations of becoming a real estate investor and building up a rental portfolio to earn passive income, house hacking is a great place to start. This way, you can learn the business and find out if it’s right for you.

Keep in mind, it will take time to build up wealth with rental properties and passive income. Wholesaling real estate may be a better strategy if you are looking to increase your income quickly first and then later invest in rental properties.

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About the author: Ryan hovers around a 10-20 handicap any given day. But the talent is there, no question.