House Hacking: The Life Hack for Financial Freedom

“Life hacks” are all the rage these days. There is an easy tip or trick to fix just about anything you can imagine.

Even real estate has a hack: house hacking, which lands you a new home AND an investment.

It’s really a hack for your financial life.

When house hacking, the owner lives in one unit of a multi-family property (or one room of a single-family home) while renting out the others. But why not just buy a house like everyone else does and move on with your life?

The average American spent 32.8% of their income on housing in 2018, up 1% from the previous year according to the Bureau of Labor Statistics. Housing prices and rents are rising. When you are handcuffed to a mortgage or rent payment, how is it possible to save and work toward ambitious financial goals? How can a new investor grow a profitable real estate portfolio? How is it possible to live in an expensive area without taking on an uncomfortably massive monthly payment? The answer for many is house hacking.

House hacking is gaining attention because it is a creative and efficient method of owning real estate while offsetting expenses. Because the property is purchased as the owner’s primary residence, the investor is able to obtain special financing options reserved specifically for home buyers. When tenants pay rent, the income offsets the mortgage payment and other property expenses such as:

  • Utilities
  • Insurance
  • Taxes
  • Repairs and maintenance.

This enables the owner to eliminate or significantly reduce their own living costs. However, house hacking is not just about saving a little money each month. It can also serve as a tremendous cornerstone for long term financial planning! For many, it jumpstarts a journey toward financial freedom, allows a higher savings rate for retirement, and frees up cash to buy another investment property.

Here are some of the top benefits of house hacking:

Additional stream of income

House hacking allows you to grow wealth through passive income. Rather than spending your time working another job, you can buy an asset that produces revenue.

“If you don’t find a way to make money while you sleep, you will work until you die.”

Warren Buffett

As a rental property owner, you will be providing a great tenant with an awesome place to live; and, in exchange, they will provide you with a stream of passive income (rent). Passive income efficiently uses time and resources because low (or no) property expenses and an increased savings rate means your funds are freed up to: pay off debt, go on vacation, help a family member, or purchase another cash-flowing investment. Imagine how much more quickly you can grow a real estate portfolio or make strides toward financial freedom!

Efficiencies of owning multiple units

House hacking comes in many forms, from renting out a mother-in-law suite or garage apartment to purchasing a more traditional multi-family property such as a duplex or triplex. Regardless of how the property is configured, you have multiple units that can provide income, and your expenses such as closing costs, mortgage, insurance premiums, and certain utilities or repairs are bundled together for one property.

There is efficiency in your time as well. The advantage of living at the property is that you know it intimately, and repairs and other issues are noticed and addressed quickly.

Flexibility

These days, things change quickly, and flexibility is valuable. House hacking gives you a unique opportunity to purchase a home without sacrificing your desire to adjust to what life throws your way.

  • Feeling the pressure to save as much as humanly possible right now? Live in the smallest, cheapest unit at your property and attract great renters for the high-revenue units.
  • Desiring a nice, homey space for your family and some extra income to offset the mortgage? Live in the unit you like best, and find awesome tenants for the other spaces at your property.
  • Wondering if your dream job will come up in another city? If you buy right, you can leap at the chance without worrying about selling your property.
  • Daydreaming about life in that fabulous part of town but don’t want to commit your entire income to a house payment? Others will love to rent a place in your amazing location, too.

House hacking provides a lot of different options to meet your lifestyle and financial needs! It doesn’t necessarily come at the expense of your comfort, personal space, or lifestyle, either, as it might appear at first glance. There are endless ways you can live in a home you love while making a really smart investment.

Better return on your investment

House hacking provides a financial return on the money invested in the property. As the mortgage is paid down by revenue from your rental units, you gain equity and own a more valuable property. And though it may cost a little more up front to purchase a suitable house hack (in comparison to a single family home), you will recoup the extra cost, and much more, as your tenants pay rent.

Just take a look at the difference in purchasing a single family home (SFH) for your own use versus a property like a home plus Additional Dwelling Unit (ADU) that you can house hack:

While your mortgage payment is typically higher when you house hack (because you purchased a larger property), your renters are covering a large portion of it and freeing up your cash to meet other goals.

Concerned that is a fallacy and you’d be on the hook for a huge mortgage payment? See below for our guide, House Hack Your Way to Financial Freedom, for some smart ways to mitigate your risk when investing in a house hack.

Next up in this house hacking series: What you should consider when developing your house hacking strategy!


Like What You Have Seen So Far?

Check out our FREE guide, House Hack Your Way to Financial Freedom, for a deeper dive into what house hacking can do for you!
  • This field is for validation purposes and should be left unchanged.
Connect With Us!

If you're looking to buy or sell a property, connect with us today!

How Can We Help You?

We would love to hear from you! Please fill out this form and we will get in touch with you shortly.
    (check all that apply)
  • This field is for validation purposes and should be left unchanged.