House Hacking - as I would define it, is utilizing your personal residence as an investment vehicle to help springboard you forward financially and to accelerate your real estate investing career.
As a real estate agent, this is one of the most common investment strategies that I see new investors and even seasoned investors that want to speed up their portfolio growth implement. Pensacola and the surrounding areas have a very large military presence and this is a very popular strategy with service men and women who utilize their VA loan to get started. Don’t worry, it also works with FHA, conventional and any type owner occupant loan you want to use. Typically loan terms are more attractive & downpayment requirements are lower for owner occupied loans which is one of the things that makes house hacking such a powerful and accessible strategy.
So what are some house hacking strategies that you can use along your path to real estate investing success?
You can rent out rooms in the home that you occupy to lower or eliminate your personal living expenses
I personally did this from the time I bought my first home at 23 up until I relocated to Pensacola and met my wife. I was interested in real estate investing back then but I hadn’t started investing yet and that wasn’t why I rented the rooms but the effect on my finances was the same. The extra money that I made from renting 1 room, and occasionally 2, in my house allowed me to invest in my 401k and still afford to have a good time in my 20’s. Investing in the stock market through my 401k during the post 2008 bear market was a great financial move and only possible for me because I had implemented this particular house hacking strategy.
You can rent rooms out to long term tenants, short term tenants or to mid term tenants like traveling nurses that typically stay from 1-3 months.
You can buy a multifamily property and live in one unit and rent out the others, again lowering or eliminating your personal living expenses
To really get things moving you can combine these two strategies
You can rent out other rooms and or other units either as long term rentals or short term rentals. Short term rentals are generally more work but offer more income upside.
This is the strategy that helped me quit my job, move to Pensacola and begin working in real estate full time as an agent and investor. While living an hour away in Mobile, AL and working a full time job, I bought and renovated a fourplex, then refinanced it to pull my money back out. At that point I had a four unit property where three tenants paid $700 per month and my mortgage was just under $1000, I was living for free and bringing in $1100 more than my mortgage every month. Because I had just renovated the property I had very few expenses or repairs which was an added bonus of combining the BRRRR strategy with my house hack on this property. I also had money to live on when I quit my job because of that refinance. This was probably the single best financial decision that I made and it allowed me to pursue a career path, real estate, that I was more interested in than the career I had in management and ultimately that was more lucrative.
Between single family & multifamily properties are properties that include an accessory dwelling unit, ADU for short but more commonly known as an in law suite. ADU’s can make great short, medium and long term rentals.
Instead of selling your home when you move you can keep it as a rental and use another low down payment loan to buy your next home. It’s important to run your numbers as if you were not living there before buying a home if this is your planned exit strategy. You want to ensure that it will cash flow when you move out.
Many military members do this at each duty station and end their military career with a portfolio of rental properties across the country that were all purchased with low or even no downpayment.
You can buy a fixer upper, move in and fix it up and sell it after two years. This allows you to use a low down payment loan to purchase the home and put your additional funds toward fixing it up. After two years you can sell the home and your first $250k in profits for a single person or $500k for a couple are free from income taxes. This is also sometimes referred to as a Live In Flip but I still consider it squarely in the house hacking category. Before I was married I intended to utilize this strategy and move every 2 years. As some of you listening probably know, having a family can change your willingness to endure inconvenience just to make a bigger profit. Interestingly enough I have a repeat past client that has moved over 40 times, sometimes simply for their career, but often motivated by buying a good deal and/or clearing their profits from the last house without paying taxes.
Watch the episode for even more great information on house hacking!
Matt Jones 850-889-0945
www.realtormattj.com
4 апр 2023
