I hacked my house! Was it worth it?
House hacking is a real estate investment strategy that involves buying a property, living in one part of it, and renting out the other parts to generate income. If you cannot buy the home you can still get started if you pick the right rental property. One that would allow you to have roommates, or short term guests, and even mid term furnished rentals. Be sure that if you are renting that subleasing is possible. Check with your landlord and state and read your lease. I am not giving advice on your situation you have to do your homework as every city and state can have different laws. I can not possibly cover every situation. I can give you some inspiration and my story of how I made it work.
Benefits of house hacking
House hacking allows you to live for free or at a reduced cost while generating rental income. It can help you build equity in your home and increase your net worth. If you are a renter it can pay your rent and you can set aside the part you would have made for a hefty down payment to get you started on your house hacking journey. House hacking can rapidly provide a path to financial freedom and early retirement if you do it right. I was able to catch up from going bankrupt in 2009 to being back on the path to planning retirement. It has helped me pay down my home as if I had lived there 20+ years, but only in a matter of 4 years. You can do this too, although results vary for each situation and way that it is done and what markets you are in.
House hacking my home has been a game-changer for my finances, and I want to share my experience and tips with you.
I have been doing various forms of house hacking all my life. It was easiest before I had children. I had roommates often. Later I did it again when the kids were old enough to follow rules and not be at risk of any situation of a communal living situation. When house hacking you must put your children and their safety first. You have to do the right thing for your family and never put a minor in the path of danger.
What is house hacking?
House hacking is a real estate investment strategy that involves buying a property, living in one part of it, and renting out the other parts to generate income. The goal of house hacking is to generate enough rental income to cover the mortgage payment and other expenses, which can reduce or even eliminate your housing costs.
There are several different types of house hacking, including:
- Duplex: A duplex is a property with two separate units that share a common wall. The owner typically lives in one unit and rents out the other unit.
- Triplex: A triplex is a property with three separate units. The owner typically lives in one unit and rents out the other two units.
- Fourplex: A fourplex is a property with four separate units. The owner typically lives in one unit and rents out the other three units.
- Single-family home with an ADU: An accessory dwelling unit (ADU) is a secondary living space on a single-family property. The owner typically lives in the main house and rents out the ADU. I did the reverse and lived in the In Law Suite and rented the rooms. Be creative, think differently.
The type of house hacking you choose will depend on your budget, location, and personal preferences. Some people prefer duplexes or triplexes because they provide more rental income, while others prefer single-family homes with ADUs because they offer more privacy.
One of the main advantages of house hacking is that it allows you to generate rental income while living in the property. This can help you build equity in your home and increase your net worth, and it can also provide a path to financial freedom and early retirement. Additionally, house hacking can be a great way to learn about real estate investing and landlord-tenant relationships, which can be valuable skills if you decide to invest in more properties in the future.
Overall, house hacking is a smart and effective way to reduce your housing costs, generate rental income, and build wealth through real estate investing.
How I House Hacked My Home
The most recent time I hacked my home was the most profitable. I was able to purchase my home with my VA loan right at the tail end of 2013. We had just finished the waiting period for our bankruptcy to clear and we finally qualified for the VA loan. The house was a gem. We purchased it initially so that my Mother who has Parkinson's could live with us and I could care for her. It was set up perfectly with a mother in law suite complete with an efficiency kitchen. My Mom had her own exterior door and and she could close her door to the family home at any time. This home was an excellent home to house hack. When my Mom decided to move to a place that provided more advanced care I decided to move into her suite and rent the rooms of the house to people. This home had five bedrooms and four baths.
I initially started off using Craigslist to find people to rent rooms. When I started out I rented the rooms empty. I started off slowly. It was a five bedroom home and I had a lot of stuff to clear out. I began to declutter aggressively. Within six months of renting the first room, I was ready to rent out another. This time I rented out the master bedroom that I had moved out of. That room made more than the single bedroom rent. This motivated me to continue to set the house up for more renters. I eventually also used AirB&B and Furnished Finders.
I then decided to create an additional room attached to my In Law suite using one third of the three car garage. So now the house became 6 bedrooms. I finished the room exactly like the rest of the home. Complete with insulation, canned lighting and a mini split a/c and heater. I moved my teenage son into the new room. I made available yet another bedroom and made the home into a six bedroom home. I then rented my son's old room in the main house.
So now it's up to 3 rooms rent for them was 1400 for the master 800 for a room, and then the rents took off and I was renting my sons room for 1000. I was motivated. I cleaned out and furnished the guest room downstairs and that room had a bathroom next to it. That room went for more money 850+. So if you do the math my totals started to become profitable. I essentially was living there for free. 4050+. The amount of rents collected did vary because at times I did have vacancies or turnover. These numbers are based in the profitable Silicon Valley. So depending on where you live the rents will adjust. At one point I had all five rooms rented (my teenage son was in one) and I spent six months living in my van down by the river not far away. No Joke! It was so worth it! It was a fun summer for sure.
The Bay Area rents are insanely high, and so are the mortgages. The numbers fluctuated as people moved in and out. Later I decided to furnish the rooms that had the most frequent turnover. I learned that furnished rooms listed for an even higher rent. I listed them on both AirB&B and Furnished Finders. It became so profitable that I was paying the mortgage on that house. I actually qualified based on the income from it to buy another home. I went and did that, I was able to buy a second home. Something I didn't ever thing would be possible after I had been homeless, unemployed and bankrupt.
The next home I bought with a “NextGen Suite” the new trendy term for Mother in Law Suite or guest house. It has an efficiency kitchen living room and bedroom. Lennar builders is now building more multi generational home like this. In some locations they even have two “NexGen Suites”. Oh what I could do with that! Again I am renting out my “Next Gen” to help me pay off the current mortgage. Can you see how this cycle can keep repeating?
When it comes to house hacking a multi-door property, there are several loan options to consider, but the best one will depend on your specific financial situation and goals. Here are three common loan options for house hacking a multi-door property:
- FHA Loans: Federal Housing Administration (FHA) loans are a popular choice for first-time homebuyers and house hackers because they offer low down payment requirements and more flexible credit score requirements. With an FHA loan, you can purchase a property with up to four units as long as you plan to live in one of the units as your primary residence.
- VA Loans: Veterans Affairs (VA) loans are available to active-duty military members, veterans, and their families. Like FHA loans, VA loans offer low down payment requirements and more flexible credit score requirements. With a VA loan, you can purchase a property with up to four units as long as you plan to live in one of the units as your primary residence. This was the loan I used to start my House Hacking Journey.
- Conventional Loans: Conventional loans are not backed by the government and typically require higher down payments and stricter credit score requirements than FHA or VA loans. However, they may offer more flexibility in terms of loan limits and property types. With a conventional loan, you can purchase a property with up to four units as long as you plan to live in one of the units as your primary residence. This was the second loan I used because you can only have one VA Loan out at a time.
In general, FHA and VA loans are often the best options for house hacking multi-door properties because of their low down payment requirements and flexible credit score requirements. However, it's important to compare different loan options and consult with a lender to determine which loan is best for your unique situation. I do not offer or advise what loan is best for you, so please do your homework. Lending trends are constantly changing and are complex. I started my journey off simply by calling a lender to find out what was possible for me.
Steps I took to house hack
To make the house hacking work I needed to make a few changes in the house. These required a few handy skills that anyone can manage. I changed the front door key to a quickset key so I could easily change out the keys whenever needed. I kept a bunch of keys to switch. Now things are even easier with tools like the Schlage encode lock. Also electronic door locks can be programmed remotely making this task even easier. I then also put a lock on every bedroom door each with a lock that I could re-key often. This allowed each person renting a room to have privacy and security. The other steps I took were to move the dishes around and I cleared out the upper cabinets in the kitchen. The lower cabinets were all pots pans and things that anyone in the home was allowed to use. I then gave each room an assigned cabinet to store their kitchen items. Additionally I included a drawer for each room. I got a label maker and assigned a space in the fridge for each person and labeled all the cabinets. I did the same thing in the laundry room cabinets. Every person had a place to keep their laundry supplies.
Challenges I faced – It was not always roses. There certainly were challenges. I did have one renter who had a medical condition. I had to call relatives and ask them to intervene. Make sure to have emergency contacts for your renters. It's important when there is a health emergency. I did have a few occasions where I needed to work with a renter because rent would be late, but my renters all made sure they caught up. My rooms and home were all set up so well they made sure to pay because they did not want to leave. I wanted to stay there also. It was a home not just a house.
Having the extra income from the renters, and using it to directly pay down the principal of my mortgage was so helpful in addition to gaining equity in the house. It is key to NOT live as if you are living rent free. Live as if you are paying the mortgage yourself and pay it, then pay down your principal as well. It's paramount that you don't squander the rents and live above your means. Doing this does cause personal sacrifices. It's not your house anymore its your's and the renters home. I would often say “Our House” in the middle of the street”. You can be house proud that you are building your wealth and not just a palace to show off. You give up a fair amount of your privacy when living with others. You can form lasting friendships, and memories.
Tips for House Hacking Your Home
Choose the right property – Discuss the factors to consider when choosing a property for house hacking, such as location, price, and potential rental income. Consider the house layout. How close are the rooms, the best layouts have each room separated by something like a laundry room, den, living room. Well spaced out rooms are easier to keep noise from room to room from bothering people. Consider the location, are you close to hospitals, a city, a college or university? Location matters. Be sure to research the property location because that is sometime you cannot change without selling.
Consider the needs of potential tenants – I liked to target professionals and travel nurses. With that in mind I chose high end beds and smart TV's. I included a chair in the room as well as things like hooks on the wall for backpacks, purses and other items. I decorated with thoughtful things like a mirror in the room, a nightstand with a usb charger and other considerate things. I actually spent weeks or months in each room myself. At one point I would rent out the entire home and when a room was vacant then I would stay in that room until it was rented. I am thankful I have a camper van and a thousand trails membership so I had somewhere to go when my home was fully occupied. So, make the rooms as comfortable as you would enjoy.
Make necessary renovations – Be sure your home is ready to have each room occupied. Be sure to make the house as efficient as possible. I installed an industrial tankless water heater so that multiple people could bathe at one time. I put in a large patio and planter bed in the backyard to make it wonderful to enjoy outside.
Set clear rules and boundaries – When I interviewed people who wanted to rent a room from me I explained the house rules. The rules were pretty simple. Keep the kitchen clean, keep the living room clean. I intentionally did not put a TV in the living room so the home was relatively quiet. Each room had a TV and the rooms of the home were well separated so noise wasn't too much of a bother. I clearly communicated these rules and would now and then send a reminder text or have a conversation if someone brought an issue to my attention with another renter. I kept these conversations as private as possible depending on the situation.
Screen, Interview and Background check
I can't express enough how you should screen potential renters. Make a list of your requirements, needs and stick to your rules. Interview the people, remember they will always be one their best behavior when interviewing. Walk them out to their car when they leave. See what condition they keep their car. Sometimes this can be an early indicator of how they may keep their living conditions. Lastly, get familiar with on line tenant screening platforms such as Smart Move. This service will not only give you their credit background, but also point out any prior evictions, and any potential criminal records. Trust your gut, if something feels wrong it probably is. Remember everyone's safety in the home relies on your screening process. So never skip or bend the rules when screening people.
Pros and Cons of House Hacking
Advantages – The advantages of house hacking are numerous. I was able to pay down my mortgage significantly while gaining equity. My personal living expenses were reduced. I was able to relax about my personal finance. I was able to pay off massive amounts of debt. I gained friends and lifetime memories.
Disadvantages – The disadvantages were, less privacy, some hassles. Troubles would include things like having a young renter break a toilet brush in the toilet then flushing it clogging the toilet. Other hassles are unclogging drains repeatedly. Having to clean and paint after people leave. Keeping things looking sparkling. Looking for handy people to handle snafus for you when it's outside your comfort zone or skill set. Being a landlord also means you may need to have someone you trust be your back up if or when you go on vacation. Nothing is more frustrating then having an issue arise when you are gone and feeling uncomfortable about how its being handled. So get a team of people on you contact list who can handle everything from Air conditioning, to washer/dryers and plumbing. Thing break, people lose keys be one step ahead of these types of thing and you will do just fine.
House hacking is a popular real estate investment strategy that involves buying a property, living in one part of it, and renting out the other parts to generate income. This method allows you to live for free or at a reduced cost while generating rental income. Your rent can be one of the biggest costs in your budget. It can help you build equity in your home and increase your net worth, and even provide a path to financial freedom and early retirement if done correctly.
There are different types of house hacking, including duplexes, triplexes, fourplexes, and single-family homes with an accessory dwelling unit (ADU). The type of house hacking you choose will depend on your budget, location, and personal preferences.
To make house hacking work, you need to choose the right property, make necessary renovations, and set clear rules and boundaries for your tenants. It's also important to screen potential renters, interview them, and conduct background checks to ensure a good fit.
House hacking is not without its challenges, such as having less privacy and dealing with occasional tenant-related issues. However, the benefits of this investment strategy can far outweigh the downsides, allowing you to pay down your mortgage, gain equity, and generate rental income while living for free or at a reduced cost.
I am an example of a successful house hacker by turning own home into a profitable investment property by renting out multiple rooms. With careful planning, smart investments, and a willingness to take risks, house hacking can be a smart and effective way to reduce housing costs, generate rental income, and build wealth through real estate investing.
Here are some books related to house hacking that can help you get started and do it correctly:
- The Book on Rental Property Investing: How to Create Wealth and Passive Income Through Intelligent Buy & Hold Real Estate Investing! by Brandon Turner – This book provides a comprehensive guide to rental property investing, including house hacking strategies.
- House Hacking: The Only Real Estate Investing Strategy You Need to Build Wealth, Live for Free (or Almost!) and Make Money Through Homeownership by Ben Leybovich and Chad Carson – This book explains how to use house hacking as a real estate investment strategy to generate rental income and live for free.
- Long-Distance Real Estate Investing: How to Buy, Rehab, and Manage Out-of-State Rental Properties by David Greene – This book teaches readers how to invest in rental properties, including house hacking, from afar.
- The Complete Guide to Buying and Selling Apartment Buildings by Steve Berges – This book provides a comprehensive guide to buying and selling apartment buildings, including multi-unit properties that are ideal for house hacking.
- Real Estate Investing For Dummies by Eric Tyson and Robert S. Griswold – This book provides a comprehensive introduction to real estate investing, including house hacking strategies.
- The ABCs of Real Estate Investing: The Secrets of Finding Hidden Profits Most Investors Miss by Ken McElroy – This book teaches readers how to find and analyze investment properties, including those suitable for house hacking.
- Building Wealth One House at a Time, Updated and Expanded, Second Edition by John W. Schaub – This book provides a step-by-step guide to building wealth through real estate investing, including house hacking.
- The Millionaire Real Estate Investor by Gary Keller – This book provides a roadmap for building wealth through real estate investing, including strategies for house hacking.
- The Book on Flipping Houses: How to Buy, Rehab, and Resell Residential Properties by J Scott – This book teaches readers how to flip houses, which can be a profitable real estate investment strategy that includes house hacking.
These books can provide valuable information and guidance to anyone interested in house hacking and real estate investing.
So if you were to ask me, is it worth it? I will respond with a huge YES!
Happy House Hacking! Leave me a comment in the description if you have a question for me. Leave me a comment if you too are a successful House Hacker.
Be sure to read The Essential Guide to the Final Walkthrough: What You Need to Know when it comes time to close on your next home!