What is House Hacking in real estate

House Hacking is something that is quite becoming a trend these days. People might have come across different and complicated terms in the real estate profession. One such term that is gaining trend is House Hacking. 

House Hacking is the act/the manner of renting out a portion of the house or flipping of house for money, and gain added benefits and advantages by receiving the amount out of rent. 

The below article has got you covered about details regarding house hunting, the benefits of House hunting, why it should be done and why it is not favorable and what are the strategies taken up to enjoy a good house Hacking hack. 

What is House Hacking?

House Hacking is a way of or the process of making money off your house without selling it. It is one way of earning money from your home by renting a part of your house, or by turning into a duplex, can do a live-in house flip or just starting a home-based business.

Though it may sound easy on paper to do, it is quite hard and not all who have an idea about it can do unless and until you plan for it. 

The idea of letting a part of your house on rent is such an old idea – but it is being reinvented in the name of ‘house hunting’. For most people, to build a home or to have a dream home is by way of earning a hefty income or by way of loans.

But this hack is one such way where you can pay back the loans taken or use this income as a way of retirement savings for your family and yourself, when you are not dependent on someone. 

what is house hacking

Why Should You House Hack?

You should house hack as the income earned by renting a part of your house contributes to your total income – where it could pay off your loans, or expenses that have been incurred for the construction of the house.

You can earn money from the place you are without even selling or moving from the place, gaining a passive income. On a monthly or a fixed period basis. 

House Hacking by all means is a kind of real estate investing strategy where you buy a house or a property at a low percentage, and live in one part of it and rent out the other part or parts of the house.

It creates a passive income for you, as you can meet your expenses and also save up for future contingencies. 

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Benefits of House Hacking

The added benefits of House Hacking would be that you could be living for free without any hassle of employment or a strict office lifestyle. It is also a smart move as you are literally building equity in a property, and also work on gaining advantage in terms of tax payment. The following are few evident but non-negotiable and not to be ignored benefits of House Hacking:

  • It is one way to generate wealth and be financially independent 
  • It eliminates or reduces your living expenses thereby contributing more than the expenses incurred. 
  • You get paid equity for free as tenants pay the mortgage that you have taken to get the house done. 
  • The value increases as the house value appreciates than depreciates.
  • You can save in tax as you can account for the depreciation value and also deduct the expenses, for the portion of the house let out. 
  • A good investment option for a first-timer with little down payment. 
Best House Hacking Strategy benefit page

What Is the Best House Hacking Strategy?

The following are different variations of house Hacking strategy that can be implemented as a strategy to gain added advantage of the hack: 

Traditional House Hacking

The most popular and the one is popularly heard of is the traditional house hack. Generally, this happens when you get to purchase a two-to-four unit house with a low down payment residential loan. You can live in one unit and rent out the other units and pay off the mortgage loan. 

Calling the living room home and renting out the rest 

This is also one of the popular methods of house Hacking, where of the rental for a traditional House Hacking is not sufficient to meet the required funds or enough to pay the mortgage, the living room and the bedroom can be separated with a curtain or a divider and the rest could be let out on rent.

And it has been reviewed to have worked perfectly as renting it out on Airbnb proved to be fruitful, even if it is let out for an afternoon or a particular month. 

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Renting by room

This can be implemented by purchasing a large family house that has enough accommodation and breathing space for separate living, with four beds and two baths.

While you can live in one bedroom for yourself, you can rent out the others. This method hack opens up a lot of financial options and possibilities to meet your needs, expenses, loan payment and also keep together some funds as savings. 

Living in a trailer/RV /renting out your primary residence

A stationary RV could be purchased and the individual could rent out their apartment or part of their house in Airbnb.

This can be done to improve your financial independence and also make the ends meet. For younger generation who are looking for chances and ideas to lessen their living expenses, this option will prove to be fruitful. 

Renting out an additional dwelling unit

This happens when you deliberately build an additional unit to your house or purchase a property which already has an additional unit attached to it.

The particular unit or space can have a bedroom, living space and a bathroom on it own, whereby the people would not disturbed or be disturbed with your living space. 

The renting out option here works well, as you can collect rent from the unit and have your own personal space as well, without being in the way of other people. 

The live in flip

The Live-in flip is something that is quite distinct yet a profitable option. But many do not prefer it as it is rare and hard to come across such a strategy that works profitable in a way that one was expecting in terms of financial assistance. 

This is where you buy a property that needs some care and maintenance, with a low percentage down loan. You will be living in that property for 2 years or so, and fix it up while living there. After the end of the two year period, you can sell it, paying no capital gains. 

People may wonder how this works, but in terms of deducing tax returns, in case of our purchase of a property, capital gains is attracted and you have to pay tax at a stipulated percentage on the amount spent to buy the house.

But if it is sold within a period of time, capital gains would not be attracted or either the total liability of tax to be paid gets less. This strategy can also be worked along with other strategies, creating a combined and compound effect.

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