If you haven’t heard of house hacking, no big deal. It’s something that’s been done before but with a new name and has become a trend over the last five years among millennials, but it’s an excellent idea for anyone!
It’s when someone buys a multi-bedroom home or multi-unit residence and rents it out to pay the mortgage. Anyone over 35 knows this as a form of real estate investment. Still, millennials call it “house hacking,” and it has become much more frequent due to economic factors affecting those in their late twenties and early thirties.
Why is this type of investment different now than it was 25 years ago?
- High-income jobs are not readily available for college grads like they used to be; this makes it too expensive for young adults to buy a home, especially in a safe area close to their jobs.
- Young adults who are not ready to buy a home yet like to live in residences owned via house hacking until they can build enough credit to qualify for their home loan.
- It immediately covers the owner’s housing expenses in whole or in part, unlike when the rental investment was a second property owned by an investing homeowner.
The average cost of a single-family home in the mid-’90s was $140K. Now, the average is $350K. At the same time, college tuition and student loan debt increased exponentially since 1992, and unemployment raged from 2010 to 2017, which did not help young people trying to start their lives.
Indeed, buying a home was only a dream for them… until now.
Benefits of house hacking
This form of investing is for anyone, any age, anywhere. So, if you have the means, these are some of the benefits you’d reap from house hacking:
- The renters cover most or all of your housing expenses. It’s simple. You buy a house, sign a mortgage, and a tenant lease, then the rent from your tenants goes to pay your mortgage.
- Gradual ascent into your investing future. Having to look after the property as not only your home but also that of tenants gives you a crash course in property management. This is a valuable, if not necessary, skill to have to become successful in building a rental property portion of your investment portfolio.
- Flexibility for life changes. What if you suddenly get transferred for work? No sweat. Keep your home where there are already renters to keep the cash flow while moving to a new home. There’s no need to find a Realtor, list the house, take the photos, sign the disclosures and contracts, allow for showings, etc. What a pain!
- Grow income fast via your primary residence. If you can negotiate a high rental rate, you may earn more than is necessary for the mortgage. This could be disposable income used for whatever you or your family needs or wants.
NOTE: It’s even possible to “hack” your garage for a renter to use as a studio apartment.
Stretching your home is the new way to stretch your dollar!