A Smart Investment Strategy: House Hacking in the United States

House hacking in the United States

House hacking is a term used to describe the process of purchasing a multi-unit property and living in one unit while renting out the others to cover the mortgage and other expenses. House hacking has become increasingly popular in the United States as a way for individuals to get into the real estate market and start building wealth. In this blog post, we'll take a closer look at house hacking and explore the benefits and considerations of this strategy.

The benefits of house hacking

• House hacking allows you to live in a property for less than it would cost to rent the same unit on the open market.
• By renting out the other units, you can offset the cost of your mortgage and potentially even turn a profit.
• You can take advantage of the tax benefits of being a landlord, such as deducting mortgage interest and depreciation from your taxes.
• House hacking can also be a stepping stone to becoming a successful real estate investor.
• House hacking allows you to learn about property management and real estate investing in a low-risk way.

Types of house hacking

• Single-family home: Purchase a single-family home with a basement or an attached in-law suite and rent out the additional space.
• Duplex or triplex: Purchase a duplex or triplex and live in one unit while renting out the other(s).
• Small apartment building: Purchase a small apartment building with 4-10 units and live in one while renting out the others.
• House hacking with roommates: Rent out rooms in your house to roommates to offset the cost of your mortgage.

Considerations when house hacking

• Location: It's important to purchase a property in a desirable location where you can attract quality tenants.
• Condition of the property: Make sure the property is in good condition and has the necessary repairs and upgrades before renting it out.
• Financing: House hacking can be more challenging to finance because lenders typically require a higher down payment and may charge higher interest rates.
• Maintenance and repairs: As a landlord, you will be responsible for maintaining and repairing the property, which can be time-consuming and costly.
• Legal responsibilities: As a landlord, you will be responsible for following all state and local laws and regulations related to renting out property.

House hacking case study

• In this example, we'll assume you purchase a duplex for $400,000.
• You will live in one unit and rent out the other for $1,500 per month.
• Your mortgage payment will be $2,000 per month (based on a 30-year fixed rate mortgage with a 4% interest rate and a 20% down payment).
• By renting out the other unit, you will be able to cover the entire mortgage payment and even turn a profit of $500 per month.
• Over the course of 30 years, you will have paid off the mortgage and will own the property free and clear.

House hacking can be a great way to get into the real estate market and start building wealth. By purchasing a multi-unit property and renting out the other units, you can offset the cost of your mortgage and potentially even turn a profit. However, it's important to consider the location of the property, the condition of the property, financing, maintenance, and legal responsibilities before getting started. With proper research and planning, house hacking can be a viable strategy for achieving financial freedom through real estate investing.