If you are married, have kids, or have a lot of money then house hacking might not be for you, but for 76% of Americans that are living paycheck to paycheck it might be worthwhile. House hacking can come in many forms such as owning a home and renting out the bedrooms, owning a multi-unit and renting out additional units, or some even consider getting roommates to lower your monthly rent a form of house hacking.
The goal is to reduce your biggest monthly expense which is housing. Reducing or eliminating your housing expenses does come with some sacrifice though. It is great when you are young, but gets more difficult as you get older. You will have to share wall space or bathrooms and other common areas depending on what type of house hacking you get in to.
I have tried several house hack strategies. In my early 20’s I always had roommates and when I bought my first house I also had a roommate. It was not a full house hack but the monthly mortgage was reduced. Lowering my monthly housing expenses has always been one of my wealth building strategies.
The Airbnb House Hack
Most recently I bought a duplex for $475,000 and rent the bottom half out on Airbnb. The monthly income just about covers the mortgage, so I live upstairs in a newly renovated 3 bedroom, 2 bathroom for almost free.
The purchase price was more than twice what I have previously paid for a property, but I wanted to be in a good location in a growing area. I have 3 strategies for holding on to the property. The first strategy is the one I am executing on, Airbnb. The second strategy would be to rent out the bottom unit long term and possibly get roommates upstairs. Worst case scenario I just have an expensive 6 bedroom house that my W-2 can cover. So much room for activities!
Luckily, Airbnb has been working out great. The house hack is only temporary as I get the top unit ready to list on Airbnb as well. Once I move out, the top unit should do about the same revenue as the bottom unit, which will cover twice the mortgage. Using a co-host or property manager I will have created a decent amount of passive income by house hacking. If I do this a few more times I could be making over six figures in rental income, potentially.
Lessons Learned
There were a few lessons learned while setting up the downstairs unit. First, I should have tried harder to get a closing at the beginning of October instead of the last week in September. The first mortgage payment would not have been due until December 1, but as it turned out I had to make the first payment on November 1.
The second lesson learned was not having the business entity set up beforehand. I was trying to get ahold of my accountant during a very busy time in the 2020 tax year. My unpreparedness delayed getting the correct entity filed with the attorney. I should have done that in advance instead of waiting until the last minute.
Lastly, the train nearby really bothered me when I first moved in and the house was empty. I knew there were trains in the area but didn’t realize how loud they were and maybe the empty house did not help. I was worried that the noise might deter guests, but luckily it has not been an issue. I was talking to someone at a local Mexican restaurant and he said in 3 months you won’t hear it. He was right, I hardly notice it now but it made me think about annoyances like that for next time.
Conclusion
Overall, this will be my best house hack yet if it continues to go as planned. The house has already appreciated and the loan is getting paid down. I will also be able to take bonus depreciation for a short term rental that will reduce my taxes. The house hacks will also give me more financial freedom to pursue bigger and better deals.
I think you can get started with house hacking at any stage and the earlier the better before you find yourself trapped in the rat race. It is just one of many tools for bettering your situation, but if done right can be a powerful one. How many books or blog articles on personal finance teach you about saving $3 on a cup of coffee? How about saving $1,000 on rent?
