How to House Hack and Quickstart Your Real Estate Investing Career

HouseHacking, PassiveIncome, RealEstateInvesting -

How to House Hack and Quickstart Your Real Estate Investing Career

House Hacking

In this post, I will explain one of the easiest real estate investing strategies to get started with. It is also one of the cheapest ways with low to no capital needed at all to start. I have personal experience with this strategy myself and I will lay out how you can do this to help get you started on your real estate investing career.

If you are starting out in real estate investing or just thinking about it and would like to learn more check out my Ebook here!

              What is it?:

House hacking is renting out space in your primary residence. This is usually done by renting out a spare room in your home. It can also be done by building out an accessory dwelling unit or ADU in your backyard or converting your garage into one. You need to check if there are any local restrictions depending on the city or county you live in.

              How do you do it?:

It is done by cleaning out your additional rooms. Give it a fresh coat of paint if needed. Decide if you want to rent it with furniture or not. If you rent it out with furniture, you can opt to rent the space as a short-term to midterm rental. We cover this more later in the chapter.

              My personal experiences:

My dad has a four bedroom three and a half bath as his primary residence. He currently lives in the primary bedroom and rents out the other three rooms to other people. He started this when I was in college to help pay for my tuition. I was also able to house-hack by renting out the second room in the condo that I live in now. I did it for a few years to a friend before I married my wife.

              Pros:

House hacking comes with its benefits. If you live in a good area or neighborhood, then renting your spare space should be easy. A good neighborhood means it is relatively safe. A relatively safe neighborhood means that the crime rate in the area is below the national average. City-data.com is a good place to check this along with other data that will be helpful when doing research on your neighborhood. A good area also has decent household income and is well populated so you know that you will have a pool of potential tenants with jobs that can pay you rent.

My dad’s primary residence checks all of these boxes so he continues to easily find tenants to rent his rooms either after one needs to move away for their own personal reasons or even if my dad decides that he does not like a particular person after living with them for a few months. In order to find tenants, he prints out an old ad that he has saved from his laptop. It was an old ad that I helped him make on Microsoft word. It consists of two pictures of the empty room, “Room for Rent” in big bold font in red across the top, and a phone number to call. He posts them at places of businesses he frequents like restaurants and grocery stores that don’t mind. He also takes advantage of the free market research of competitors to who post their rent amounts to help him decide on a good price for his. He waits and people start calling to see the room within the next week.

You’re renting out something you already have, such as your primary residence. So aside from getting the room ready, not much capital is needed. Getting the room ready may entail getting rid of the junk currently in the room, cleaning the floors or shampooing the carpet, and giving life to the walls with a fresh coat of paint. If you decide to rent it as a short-term or mid-term rental, you may need to buy furniture. This may cost $5,000 - $10,000. Nice furniture with great interior design can really help your marketing presence and give opportunity to have higher rent prices. 

It is easy to manage since it is an investment in proximity. You have more control over it since you see it every day. My father is very clean so he takes the time to make sure the house is tidy. He trains his tenants to clean the bathroom that they share by creating a log of who’s turn it is to clean and which week. It a way he’s outsourced some of the property management to his own tenants!

It has potential for you to live for free. If you have purchased the property early enough with plenty of equity, chances are that your monthly mortgage is low. Renting out the other rooms can potentially pay for most or even more than your mortgage payments. If you live in a high appreciation state or area, then it gives you the opportunity to keep the investment and enjoy some appreciation in the long term.

You get a better feel for who your tenants are since you live with them. Prior to signing an agreement with them and making sure they are the type of tenant that is a right fit for you, they feel a little more pressure to keep the place clean and pay rent on time since you live there as well. 

              Cons:

I have shared with you some benefits of house-hacking. However, there can be some cons as well. Having room-mates can be annoying. Communication will be key as you learn to live in the same house. Make sure to have clear boundaries written down on your agreement before signing. This will help to live comfortably with less headaches from your tenants. Make sure you have criteria on who you would accept as a tenant. Look into the laws in your city to see what you can ask for when giving potential tenants an application. That’s right, make an application to give to prospective tenants even if it’s just for renting out a room in your house. Have an idea of how much your tenants earn a month. Are they regularly employed and can they pay your rent?

It does not make sense to hire a property manager for house hacking, so you will have to manage the property yourself. However, you are already doing most of the management yourself anyways since you live there.

In this high interest rate environment and if you live in a high priced area like myself, you probably won’t make much cashflow. You will need to look at your current monthly mortgage payments and other monthly costs (taxes, insurance, HOA dues, gardening etc. ) into consideration before deciding if it makes sense. However, if you have owned your property for awhile now and your payments are not as high as the current rate for a room in your area, then you may have potential for cashflow. Renting as a short-term or mid-term rental also may have the potential to increase your return.

              In conclusion:

House-hacking has many advantages and disadvantages. It is very easy to get started with because it does not cost much with virtually no capital needed since you already own the property as your primary residence. It is very easy to manage since it is only a room when compared to other investments such as single-family rentals and you cannot get anything closer in proximity than your own home. It has the potential to lower your monthly mortgage payment or even pay the whole amount or more. However, tenants can be difficult so make sure you make clear boundaries and thoroughly vet your potential room-mates. You will have to manage the property yourself by cleaning the house, collecting rent, and making repairs yourself. It’s your house and you may do this anyway so it may not matter.

After weighing the pros and cons, decide if this strategy works for you. If it does, make a plan on how it can work for you. If you have already done some house-hacking yourself, let me know your own experiences below down in the comments.

If you are starting out in real estate investing or just thinking about it and would like to learn more check out my Ebook here!

In the next blog posts I will talk about other investing strategies that I have done myself as well as others that have been successful for real estate investors over the years and continue to be successful.


Leave a comment

Please note, comments must be approved before they are published