House Hacking is a real estate strategy where a real estate investor lives their primary residence while making income off of the property via rental income. The rental income will offset the mortgage, utilities, and other house expenses.
House Hack Definition & Types
There are many different forms of House Hacks. The three most common types are renting out bedrooms in a single-family, live in one unit to multifamily while renting out the others, or live in house flip. The most common is the multifamily route because of the comfortability of it. For some smaller supplemental rental income, there is renting out your garage and renting out parking spaces too. It all comes down to the location for what can be done (if no one else is renting by the room in your area then most likely no one will rent out the bedrooms in your single-family house). When the older generation hears the phrase “house hack” they might say, “you mean living with roommates?”, but it is more than that and embodies a full strategy that can be scaled easily year after year.
How To Analyze a House Hack
Analyzing a house hack is very similar to any other residential rental property, except the goal would be to get ALL of the housing expenses paid for (not likely in most markets). Just take monthly expenses being PITI (Principle of mortgage, the interest of the mortgage, taxes, and insurance), some added monthly maintenance (lawn care, snow removal, and other safe-keeping cash reserve) and utilities (your utilities of electric water, gas, etc. and what is not separated out per unit) and subtract it from the rental income you receive on a monthly basis.
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“It all comes down to the location for what can be done (if no one else is renting by the room in your area then most likely no one will rent out the bedrooms in your single-family house).”
Why You Shouldn’t House Hack
The benefits of house hacking are obvious: Make money while saving money. The good always comes with some bad. Some negatives are sharing property and a house with strangers, dealing with tenant disputes, chasing rent collection, evictions, a good amount of handyman work to keep the property rent ready and it will be a money pit. All the negatives can be kept at a minimum by making sure the tenant is screened and proper due diligence is done upfront.
In Conclusion
House hacking comes in many different forms and has no cookie-cutter way of going about it. Any property can be a house hack as long as their can be rental income or any income can be made from your primary residence to offset your housing expenses. You just have to figure out a way to make it happen with the numbers to be favorable. House hacking will yield dividends in the long run.
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