What is House Hacking?

Sakera Patel S

Introduction

Homeownership is an amazing thing, but it can also be expensive, especially if you’re trying to cover all your bases by buying an expensive house in a good neighborhood and paying it off as fast as possible. Fortunately, there’s another option out there that you may not have considered before: house hacking. House hacking is when you combine multiple income streams to finance your home without having to pay anything more than the mortgage each month, allowing you to save tons of money over time.

There is no denying that owning a home is a great way to build your net worth. But what if you could get even more out of your purchase? What if you could leverage your house as an investment and reduce your monthly expenses? There are ways for you to do just that. It’s called house hacking, and it involves living in a single unit within one or multiple homes by subletting, splitting with roommates, or finding alternative arrangements.

What is House Hacking?

If you haven’t heard of house hacking, it is a concept that has been growing in popularity in recent years. 

House hacking simply means renting out part of your home to generate income that can help pay for living expenses.

The concept also works if you’re interested in investing more in your home and making changes and upgrades with your rental income. House hacking can involve buying a new property with one bedroom (or less) and renting out extra rooms or creating a second unit on an existing property, such as a basement apartment or garage apartment. It isn’t just ideal for renters looking for an inexpensive place to live but also for people who need additional income or are looking to invest more money into their homes.

How do you do it?

The first step in house hacking is deciding why you want to do it. Are you looking for more space? A rental property or business venture? Some other reason? Next, figure out what you’re willing and able to pay for. There are different strategies (and pros and cons) for each situation. It’s also important that if you’re using a partner, any potential partners be completely on board with your strategy before you begin house hacking. Third, choose what kind of house hack you want to make. You can live in one property yourself and lease others out, take on a low-risk cash flow investment or go all-in with a fixer-upper.

Reasons to house hack

The idea of house hacking—moving into a larger home you don’t own to live for free—sounds more like an extreme couponing scheme than sound financial advice. So before we get started, let’s state upfront that we aren’t talking about squatting or stealing here (at least not in a legal sense). Rather, house hacking is making it work with what you have by utilizing your current resources in smart and productive ways. Because after all, every extra bedroom is an asset that can be transformed into cash flow or profits. Here are four reasons why you should give house hacking a shot

1. You Can Reduce Your Rent/Mortgage Payments

Living for free may seem too good to be true, but that doesn’t mean it isn’t possible. It might require some strategic thinking on your part, but if you know how to house hack properly, you could wind up paying no rent at all while increasing your net worth significantly over time. It works something like this: Instead of buying or renting a single-family home outright and living there alone, look into purchasing a multi-unit property instead where you can move in yourself and then rent out one or two additional units on top of your own living space. This will allow you to cover your mortgage payments while also pocketing money from tenants who would otherwise be paying their landlord directly.

2. You Could Pay Off Debt Faster

House hacking can also help you pay off debt faster because each month, as long as you have tenants covering your mortgage payment, you’ll essentially receive a paycheck equal to whatever amount they are paying toward their rent. That paycheck will go straight toward reducing whatever debt load you currently carry—whether it’s student loans or credit card bills—and save you thousands of dollars in interest payments over time. 

3. You’ll Be Able to Save More Money

With fewer monthly expenses eating away at your income, house hacking can help you boost your savings rate quickly. If you were able to house hack successfully and reduce your monthly expenses every month, that would translate into an extra savings over a year. 

4. You’ll Be Able To Invest More Money

If saving money is important to you but you want to invest those funds somewhere other than in a bank account earning 0% interest year after year, house hacking could provide another opportunity for growth on top of any retirement accounts or other investments you already have set up.

Conclusion

House hacking is an alternative approach to real estate investing. It doesn’t involve buying a house, fixing it up, and then selling it. Instead, you buy a house and make your mortgage payments while also renting out rooms or even your entire home. House hacking can be a lucrative way to invest in real estate because it allows you not only to collect rent but grow your net worth through long-term appreciation in home values. The amount of rent money you collect is also tax-free income! Best of all, your house hack can serve as a primary residence—one where you have zero mortgage payments.

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