One of the best ways to get started investing in real estate is through “House Hacking”. The overall strategy of house hacking is to purchase a property in which you would live in a portion
of that property and rent out the other portion to tenants. In turn, these tenants will pay rent which covers some or possibly all of your mortgage payment.
There are two ways you can House Hack:
1. Purchase a large single family home with multiple rooms, where you live in one room and rent out the other rooms, or
2. Purchase a multifamily property, where you live in one unit and rent out the other units.
Each option works well depending on your privacy preferences. If you have friends that you would like to live with, then the large single family home can be a good option. Or if you have a family and you like having more space, then the multifamily property would be the better option for you. Either way, the rental income goes towards your mortgage payment which can provide you with savings on your living expenses and also you will enjoy the rest of the benefits of real estate investing: appreciation, equity build up, and tax benefits.
House hacking is optimal for those just starting out because you can use an owner occupied, low down payment loan to purchase your property. Your lender can even approve you for a higher loan amount if you go the multifamily route, because they count the rent from the other units towards your overall income. Also, you can usually save up for a 3.5% down payment significantly quicker than a 20% down payment, so when looking at the time value of money equation, it is best to get started as soon as possible so your money can keep working hard for you and compound over time.
I am currently House Hacking a property that I recently purchased with an FHA loan. The property is a duplex, so I am living in one unit with a roommate who is paying rent, and I have tenants in the other unit paying rent as well. After some renovations, my roommate and I will be paying the same amount to live in the property, except I am the one that owns the property, while she’s helping me pay down my mortgage.
