By the time I turned 20, the idea of buying a home seemed daunting. However, I had a clear goal in mind: kick-start my real estate portfolio, acquire my first house, and let others pay my mortgage. The hurdle? The hefty 20% down payment for an investment property. That’s when I stumbled upon a lesser-known strategy that not only jumpstarts your real estate journey but also secures you a primary residence with minimal down payment: House Hacking. I successfully bought my first duplex using this strategy, and here’s how you can do it too.
What is House Hacking?
House hacking involves purchasing a 2-4 unit property (duplex, triplex, or quadplex), residing in one unit, and renting out the others. The rental income offsets or entirely covers your mortgage, allowing you to live for free and start your rental portfolio.
Benefits of House Hacking:
- Low Cash In:
- In conventional real estate investing, a 20% down payment is typical for your first investment property. House hacking, however, lets you own an investment property with just 3.5% down using an FHA loan, 3% down with a conventional loan, or even 0% down with a VA loan. The ability to enter real estate with such a minimal investment is a game-changer!
- Live for Free:
- House hacking significantly reduces or eliminates your living expenses by leveraging rental income from your property.
- Tax Savings:
- Real estate investments or multiple rental units offer tax breaks. Deduct property maintenance expenses and utilize depreciation to legally minimize your tax liability. Legally not pay Uncle Sam?! I am in!
Steps for a Successful House Hack:
- Understand Financing Options:
- Consult a lender experienced in house hacking to guide you through the financing process. They’ll help navigate any specific rules and regulations based on your situation.
- Find a Property:
- Location and property condition are crucial for long-term success. Choose a property that can serve as both your primary residence and a future rental.
- Crunch Numbers:
- Before making an offer, calculate rental income, property expenses, cash flow, and return on investment. Ensure the numbers work both while you’re living there and after you move out.
- Close on the Property:
- Finalize the purchase and find reliable tenants, familiarize yourself with landlord-tenant laws and the Fair Housing Act. Having trustworthy tenants, especially if you’re living on the property, can be a significant advantage.
How House Hacking Makes Financial Sense – By the Numbers:
Consider this scenario: You buy a $300,000 duplex with a 3.5% down payment ($10,500) on a 6% interest, 30-year fixed mortgage. Your monthly mortgage is $2,139. You rent one side for $1,500 and have two roommates living with you on your side each paying $500 which brings your total income to $2,500, covering your debt service and leaving extra cash for repairs and utilities. When you move out, your bedroom adds to your income.
You Can Do It Too:
A house hack is an excellent way to enter the real estate game with minimal upfront costs. I’m grateful for utilizing this strategy, and I hope my story encourages others. I’ve navigated this process for myself and clients, so if you’re considering house hacking – Call me! YOU CAN DO IT!
