What is House Hacking?
The real estate market is a vast and complex industry, with a range of investment strategies that investors can use to grow their wealth. One strategy that has been gaining popularity in recent years is “house hacking.” But what is house hacking, and is it a good way to make passive income? Read our article for more information on this form of real estate investment and whether or not it is right for you.
Different Types of House Hacking
So what, specifically, is house hacking? Originally, the term “house hacking” described the practice of buying a multi-family property and living in one unit while renting out the other units. These days, the term is not limited to multi-family properties. Any situation that involves the investor living on the property with tenants may be considered house hacking.
Multi-unit property house hacking continues to be popular, especially for investors that live in cities with a higher cost of living. You have the ability to live in a more desirable area and, thus, charge higher rent to tenants to offset your up front costs. Keep in mind, however, that being a landlord to multiple tenants has its own set of challenges. You will need to find reliable and preferably long-term clients and be willing to perform routine maintenance, among other tasks.
Another way to house hack is to purchase a larger property and rent out spare rooms to short-term guests on platforms such as Airbnb or Vrbo. While this approach can be quite lucrative, it also comes with some additional risks, such as dealing with unruly guests and managing the upkeep of your property. You may also have a harder time finding tenants who are willing to rent out rooms on vacation while you are still living there.
What is Fixer Upper House Hacking?
A third way to house hack is to live in a fixer-upper and rent out part of the property while working to improve it. The rent from tenants can go toward paying both the mortgage and upgrades. This can be an excellent way to generate income from a property while also increasing its resale value with every renovation. You will likely need to charge a lower rent than comparable rentals in the area, however, since a fixer upper entails certain issues. Depending on what those issues are, you may also have more difficulty finding a willing tenant.
House Hacking as a Source of Passive Income
Now that we’ve explored some of the ways to house hack, let’s talk about whether it’s a good investment strategy. While there are no guarantees in real estate, house hacking can be a smart way to build wealth over time. By living in one unit and renting out the others, you can offset your mortgage and other costs and generate a positive cash flow, which can help you save money and reinvest in your property.
Like all real estate investment strategies, house hacking may not be a viable option for everyone. It requires a lot of work, from finding the right property to managing tenants to dealing with maintenance and repairs. You will also need a good downpayment in order to make the mortgage manageable and rent affordable for tenants. The downpayment needed for a large property or multifamily property, for example, may be cost prohibitive for many investors.
House Hacking Loans in Colorado
If you’re considering house hacking as a real estate investment strategy, it’s crucial to do your due diligence and make an informed decision. There are many different ways to house hack and no one-size-fits-all approach. What works best for you will depend on factors such as your financial goals, your desired location and lifestyle, and your willingness to put in the time and effort required to manage your property successfully. It will also depend upon your ability to secure a loan with manageable terms.
If you are interested in house hacking or any other form of real estate investment in the state of Colorado, contact the professionals at Pine Tree Financial. We loan on all sorts of projects and work with all clients on a case-by-case basis. Call or go online today to get started.