Renting out rooms in your home, otherwise known as “house hacking”, Is a form of living rent or mortgage-free. Essentially, you buy a property and live in only one space or room of that property. You then rent out the other rooms at price points that will either cover your mortgage payment or make the home profitable for you. It’s a way to live rent-free while still building equity in your home. More importantly, house hacking allows you to save your money that would otherwise be going towards rent. You can invest that extra money, save it for a rainy day, or use that money to purchase your eventual dream home.
Either way, more and more people are turning to this method of buying homes to live in richer neighborhoods. People can afford more because they know that they can have roommates that essentially cover that mortgage payment. Not only that, but there are also tax write-offs involved that can significantly lower your taxes. It can also be a great selling point to increase home value. Financially savvy people are taking advantage of house hacking to retire earlier and live debt-free.
However, is this right for you, and are there any drawbacks to this idea?
Why You Should Try House Hacking
House hacking is good for those who:
- You don’t have kids
- Don’t mind being a landlord
- Don’t mind living with someone you don’t know
- Can set clear boundaries about personal space
- Already has a home or is about to buy one
- Is planning on staying in a home for at least 5 years
- Are prepared to do the necessary work to advertise your home
House hacking is going to teach you the ins and outs of being an actual landlord. Most of the time, you’re going to live next door to your tenant. When done effectively and with the right tenant, it can make a home become profitable. Essentially, if you’re in the right situation there’s free money on the table. If you have a partner, make sure that they are also on board when looking at purchasing a property and determine if they need a full home to themselves. This may lead you to buy a duplex instead of buying a home.
Also, consider the fact that this may be one of your only ways to purchase a property in an expensive market. If you live in somewhere like LA, Chicago, or Atlanta, property prices have risen exponentially in the past couple of years. Finding an expensive home that you can use to your benefit with house hacking is going to set you up for a good financial future. Especially if that city is growing, which is only going to improve home value.
Why House Hacking Isn’t Right For You
Simply put, you have to become a landlord. This means you are in control of the managing and upkeep of your property. When there is a problem, your tenant is going to call you for the solution. That means you’re also responsible for that living situation should a tenant default on rent or become unsuitable, causing you to evict them. That property you have is now an investment and if your friend can’t make rent, then you will need to evict them out to recoup the full benefits.
You also need to account for the fact that there will be periods in which your property will not be occupied by a tenant. You will need to actively market your home to rent to others. This can be affected by the town you live in, the population size, and the people you know. Marketing a property can be a ton of work. It may be more beneficial for you to list your property on Airbnb where you can have moments in which you live alone, instead of having a permanent resident.
Also, don’t buy a home with the intention of house hacking if you’re only going to be staying there for less than 5 years. This won’t allow you to build up equity on the property, even with a tenant. The ultimate goal is that you pay off the property or use the money to live rent-free and invest in other ventures.
What do you think of house hacking? Let us know in the comments below and subscribe to Dock Line Magazine!