If you think being a rental property owner is financially impossible, you should consider house hacking. House hacking means buying a personal residence and renting out your extra space to make money. It’s not being a rental property owner in the traditional sense. But this low-key method can help you transition into a more lucrative rental business later.
It’s good to note that being a house hacker doesn’t require much rental space. Here are some creative house-hacking strategies to put more money in your pocket. You could rent out any of the following spaces for living, storage, or entertainment purposes:
- Your guest room or extra bedroom.
- The space above your garage.
- Your second home or condo (when you’re not using it).
- A closet.
- Your storage shed.
- Extra parking space (outdoor or garage).
- Your landscaped yard.
- Your pool.
Here are Some Great Reasons to Become a House Hacker
-Lower-cost loans and smaller down payments. When you purchase a personal residence, you pay lower interest than you would on a rental property. Banks consider investment properties a higher risk and favor individual buyers, which they perceive as low risk. Similarly, they offer individual buyers lower down payment options. A typical conforming mortgage requires as little as 3% down, while an FHA loan requires only 3.5% down for property owners with a credit score of 580 or higher. USDA and VA are exempt from down payments.
-Offset living expenses. Renting out a portion of your home, even as storage space, can create enough passive income to live more comfortably. Your renters could potentially cover some of your mortgage and utility costs.
-Valuable experience. Learn what to avoid – such as rookie mistakes like bypassing thorough tenant screenings or failing to purchase landlord insurance and other potential risks! Discover how to navigate the treacherous waters of landlord-tenant relationships. Finally, your house hacking experience could set the stage for renting single-dwelling properties in the future.
Top House Hacking Challenges
-Maintenance and upkeep. With more people living in or using your home, appliances and fixtures will wear out faster. Plus, there will always be yard work, housecleaning, and home repairs. Maintaining a property can be quite a chore! Be sure to define up-front which tasks are the tenant’s responsibility so there’s no confusion later.
-Disputes. Bad blood can arise between tenants or between tenants and their landlords. Disagreements over the use of common areas and differing lifestyles may cause friction. If renters are unhappy with response time to maintenance requests or feel their living area is unsafe, they may become displeased with their landlords. Learning to navigate the negative side of house hacking can prepare you for owning a more extensive property later.
-The unforeseen. Be sure to create an emergency fund to prepare for the unexpected. Your emergency fund should always include 3-6 months of living expenses in case of vacancies, disasters, or other income-derailing events. You can then build your enterprise gradually until you have what you need.
So, if you’re intrigued by rental property ownership but don’t have the experience or capital to make it happen, consider house hacking. You can start with small spaces and small investments as you work up to a larger enterprise. Even if you simply offset your living expenses, you could make a more comfortable life for yourself and your family. At the same time, you’ll be learning a new life skill that you can pull out later if needed.
About Rentals America
Rentals America provides full-service property management for residential rental properties. Our team is completely dedicated to property management, and we’re here to help landlords navigate the rental market.
