For thousands of people in America, being a homeowner is a concept that seems just out of reach. However, with a little creativity and innovation on their part, they might be able to reach their dream of being a homeowner a lot sooner than they think.
This is where the term “house hacking” comes into play.
What is House Hacking
Simply put, house hacking involves owning a property and renting out a bedroom, basement, or other portions of the house. For many Americans, their housing expenses may be the biggest in their budget. A successful house hack allows you to remain living in one portion of your property and use the additional income from renting other portions to pay for your mortgage and other expenses.
House hacking is a great first step to dipping your toes into the real estate business. It allows homeowners to gain insight into whether being a landlord is right for them, and can help them gain valuable experience for if they choose to purchase other properties with the intent to rent them out.
Pros of House Hacking
Helps Decrease Expenses
House hacking helps to decrease any out of pocket expenses as your tenants help contribute towards monthly bills. While their payment contributes towards your mortgage, it can also lend itself towards utilities as well. For example, if you have a three-bedroom house with two other tenants, splitting bills like water, gas, and WiFi significantly lessens the financial load for you.
Increases Net Worth
Ensuring your mortgage is paid on time will help build your credit score, making it easier to expand your rental property portfolio in the future. Owning such a large asset like a home can also add to your net worth – and the sooner it’s paid off, the better.
Experience
While house hacking might seem intimidating, it can be a great starting point for aspiring landlords. If you dream of reaping the financial benefits of a rental portfolio, starting with house hacking can give you valuable hands-on experience in managing tenant-landlord relations, leasing and tenant screening, and property maintenance.
Cons of House Hacking
It Can Be Too Close for Comfort
A typical landlord will not always live in the same area as their rental property. This creates some distance between them and their tenants. However, when house hacking, your tenants are simply a wall away. You may run into issues with a lack of privacy or never truly feeling “at home.”
It can also get too emotional. The line between professional and personal can easily get muddled if your tenants fall behind on rent or ask for reduced rental rates.
How to Screen Potential Renters
Being that these tenants will be living in close quarters with you, it’s important to take your time during the screening process. Before listing your property for rent, you should have a clear idea of what requirements you would like your ideal tenant to meet. As an owner sharing your own property with tenants, you legally are allowed more flexibility to regarding what qualifies someone for your property. Unlike with traditional rental portfolios or multi-family properties, you can be more strict on your rental criteria and more subjective in your decision making.
Perhaps you would like them to have positive references from a past landlord in addition to having them complete a thorough background check. Since you will be sharing living quarters with your tenants you may want to have different standards for what type of criminal or eviction history you’re willing to accept, if any.
If you see or sense any red flags, or if they don’t meet your rental criteria, you can politely turn them away.
Once you’ve narrowed down prospective renters, you can invite them to view the property and complete an application giving you additional information about them as a tenant.
House-hacking may be the answer to finally having the financial freedom you’ve always wanted. Be sure to do your research and see if house hacking is the right choice for you.
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