Did you know that you can afford to live in a more expensive neighborhood without having to spend much on housing? There's no need to overreach your housing budget to live in your dream house. It is possible to live in a desirable neighborhood without paying the housing price for the area.
How's that possible? Well, there's a revolutionary way to become a homeowner in an expensive market through creativity and flexibility. You can achieve your dream through house hacking. If you're coming across this term for the first time, consider this your guide for house hacking 101.
What Is House Hacking?
House hacking is all about living in a desirable neighborhood while minimizing housing expenses. House hackers have acquired their dream house by adopting creative means to reduce monthly housing expenses. They also maximize after-tax returns on the equity they invest in their homes. Essentially, the process is about using creativity, imagination, flexibility, financial know-how, and persistence to achieve your real estate objectives.
House hacking is a simple concept, but it's an effective mindset to achieve your homeownership goals in an expensive city or neighborhood. It's all about finding unique ways to acquire the home you want while spending less than what other people around you spend on housing-and doing it tax-efficiently.
There are several cost-saving techniques that could potentially work for almost every homeowner. House hacking involves finding one or more creative and legal ways to reduce your housing expenses, make them tax-deductible, and increase the equity in your home that you can use as a stream of passive income. The savings will vary depending on where you live and how long you stay in the house. But you can potentially save tens to hundreds of thousands of dollars during your time as a homeowner.That's a lot of savings!
While house hacking does take creativity and persistence, it doesn't take much money to get started. It requires some upfront thinking about how you want to own your home instead of your home-owning you. You don't need to be rich or have a significant income to live in a desirable neighborhood.
House hacking is about ownership, not renting. It doesn't matter if you own your home outright or are still making payments against it. As long as you're an owner and not a renter, then you've accomplished the core goal of house hacking. It can be another way to invest in real estate, just like fixing and flipping a house.
Benefits of House Hacking
- House hacking allows you to earn income and lower your monthly housing allowance by renting part of your home or selling personal belongings. It's a way to make more money while simultaneously reducing your housing expenses.
- House hacking provides you with a lot of income flexibility. It allows you to get most or all of your monthly housing expenses covered without having to list an extra room on Airbnb for short-term rentals formally. Thereby, you avoid the hassle and risk of dealing with unruly guests.
- House hacking allows you to keep your housing costs low even when your income is temporarily depressed due to changes in employment or other life circumstances.
- It gives you additional flexibility compared to traditional homeownership. You get the option of renting out part of your house for income later relocate when needed. You wont have to sell your home or take a significant loss on it.
- House hacking allows you to learn how to be a landlord before you can fully transition into a rental real estate investor.
- However, the essential benefit of house hacking may be increasing your freedom and financial security. House hacking serves as an avenue to give you more options in life by improving your wealth-to-debt ratio.
House Hacking Strategies
Before you jump straight into the new real estate trends, it is important to know that house hacking doesn't work for everyone. To be successful in your house hack, you need to be creative and use the house hacking strategy. Here's how to house hack and be successful.
Look for Multifamily Properties
House hacking is more effective if you live in a multifamily property. It allows you to rent out part of your house while retaining the use of the remainder. It's best to live with family or friends as roommates and then rent out one or more rooms under standard area guidelines.
If you aren't lucky enough to have people available who want to live with you in the same house, then look for a multifamily property, which lets you rent out part of the structure without having to worry about issues with local zoning or building codes. You want at least two bedrooms and a full bath within your rental area.
Choose a Rental Area with Good Economic Growth Prospects
You need to live in an area that has good economic growth prospects to house hack successfully. Consider the job opportunities and other indicators of overall income growth within your city, county, or state. Of course, nothing quite beats living in a booming economy where people move into the area every day looking for new jobs. You can even get good financing options for a rental property investment if you live in an area with a good economy.
Check the Regulations on Home-Based Businesses
If you have a home office or other business operation, then you are probably already aware of all of the rules and regulations that go along with it. If not, then now is an excellent time to educate yourself about various licensing requirements, as well as any restrictions on residential use.
House hacking is a lot less stressful if you live in an area with few or no restrictions on home-based businesses. It's not uncommon, however, for localities to impose limits on home-based businesses and short-term rentals. You should be familiar with these regulations before you begin house hacking.
Get a House Near Public Transportation
Because you're going to rent your space, you want to ensure you can find renters easily. That means being close to public transportation. Public transit can be good for getting your renters to and from the property while providing them access to more of what they're interested in. If you have a car, don't fret. You'll still want to live near public transport if possible so that anyone renting from you has other options for travel.
Make Sure the House Has Enough Living Space
Even if you're getting a good deal on the purchase price, it doesn't matter if you don't have enough space to rent out. You want to buy a home with at least 2,000 square feet of living area for each bedroom in your rental unit. If possible, try to buy a property that includes side and back yards. That way outdoor activities are still an option for your renters.
House hacking may be a solution for anyone who wants to live more freely with the money they make. It's a way to get out from under your current pile of debt while providing you with a better financial future. This method can also work for you if you want to get your feet into the real estate investment without all the financial burdens that come with it.