House hacking can be a great way to help better afford to buy a house, pay your mortgage off early and more. But what is house hacking?
And who can take advantage of this increasingly popular way to home ownership, financial freedom and more?
In this article, we will share answers to these questions and others, including whether or not house hacking is really worth it.
How Does House Hacking Work?
In short, house hacking involves generating some type of income from your home. Interestingly, there are a number of ways to do this.
And people take advantage of house hacking for a number of reasons. House hacking can take on many forms and can work for nearly all types of home dwellers.
More importantly, you can use the money you earn for a “wealth” of different reasons. But what are the more specific ways to house hack, the benefits of house hacking, and can they work for you?
Why Should I House Hack?
As mentioned earlier, people house hack for a number of reasons. For example, you might house hack in order to better be able to afford your mortgage payment.
With rising mortgage rates and inflation on living costs such as food and transportation, money is getting tight for many people. House hacking can help ease the burden on your budget.
You can also use house hacking to reach your financial goals. Maybe you’re interested in paying your house off early or saving to upgrade to a different property.
Conversely, you may want more money to reach financial independence or to pay for a college degree.
In short, if you have a need or a desire for more cash, house hacking may be able to help you.
How Much Money Can House Hacking Save Me?
Depending on what type of house hacks you use, house hacking can save you a few hundred dollars a month or a few thousand dollars a month.
For example, renting out a bedroom in your home can increase your income by $4,000 per year or more.
Let’s say you’ve just bought a home and your mortgage is a 30-year mortgage for $250,000 with a 6.0% interest rate.
If you charge someone $400 per month to rent out a bedroom in your home and put that $400 as an additional principal payment on your mortgage, you’ll save over $130,000 in interest over the course of the loan.
That is a lot of cash! Conversely, what happens if you were to take that $400 per month and invest it for 20 years in an investment that had an annual return of 7%?
You’d have over $200,000 in your investment account. So, yes, house hacking does pay!
Top House Hacking Tips
If you’re interested in learning more about house hacking, consider the following tips for maximizing your success.
Buy a Single Family Home With Extra Bedrooms
One tip for successful house hacking is to buy a single family home with more bedrooms than you need for yourself and/or your family.
From there, you can rent out the extra bedrooms, usually for several hundred dollars a month each, depending on where you live.
Of course, house hacking in this manner means you’ll be sharing common living spaces such as bathrooms, kitchens and living spaces with your renter.
For that reason, you’ll want to choose your renting companions wisely. When I bought my first home I rented out a bedroom to my brother. He and I get along well, so it worked out famously as we shared common spaces.
Conversely, renting out a bedroom in a shared house to a renter you don’t care for or who has a schedule that conflicts with yours may be unpleasant.
Another option? Advertise your rentable bedroom on Airbnb and similar sites, and rent when you want to, keeping the space free when you don’t.
It’s not uncommon to make $1,500 or more when you use Airbnb. The potential to increase your income dramatically exists when you rent out to business or casual travelers.
In addition, you can keep the space you’re renting out empty when you want to, choosing when you do and don’t want to share your home.
Consider Buying a Multi-Family Home
One way to house hack and not have to share your living space is to purchase a multi-family home such as a duplex or a triplex.
You and your family would live in one unit of the house. You’d rent out the other unit(s) of the home and use that money to achieve whatever financial goals you have.
As referred to earlier, that might mean paying your home off early, saving for a large purchase, saving to retire early or other financial goals.
And using a two, three or four-family dwelling to do so can both increase your income and help keep your personal living space intact.
House hacking using a multi-family unit can be a great way to become a real estate mogul and still have your privacy.
Rent Out Your Garage or Basement
Another house hacking tip is to rent out your garage or basement. If you have a finished basement that can provide separate living quarters for your renter you can help ensure your privacy–even in a single family home.
If your basement isn’t finished, consider finishing it and calculate how long it will take to rent the basement out to cover the cost of finishing the space. You may find that you can make up to cost of finishing the space quite quickly by renting it out.
Looking for a way to house hack without having to share your space with roommates? How about renting out your garage? You could use your garage space to rent out to people with cars, boats and other recreational vehicles.
Or you could rent your garage space as storage space to people who need space for boxes, furniture and more.
Check out a site like Neighbor.com where you can find people looking to store stuff.
Buy a House You’ll Like Living In
If you’re searching for success in house hacking, it’s important to be sure to use a house you like living in.
In the event that you’re sharing your space, house hacking can be a long-term investment if you’re hoping to really make some huge cash.
For that reason, you’ll want to choose to purchase a house you’ll love to live in. Of course, if it turns out you don’t care for the house you could always rent the entire house out to someone.
Study Up on Being a Landlord
Before you start your house hacking journey, it’s important to study what the laws are in your state regarding landlords and tenants.
Knowing the rental laws in your state is important so that you treat your tenants according to the law. In addition, you’ll know how to stop tenants who are breaking the law in your home.
That way you’ll know exactly what you need to do in case a problem comes up as you rent out your space.
Visit your state’s housing agency website for more information.
Use the Extra Money Wisely
Above all, use the extra money you earn wisely. The money you earn from house hacking is “extra” money, meaning it shouldn’t be included as a part of your budgeted income.
Instead, use it as bonus income to achieve financial goals that might be out of your reach otherwise.
Choose to designate the funds to go directly to making payments on your mortgage or to go straight into your savings or investment accounts.
Next, let’s look at answers to some frequently asked questions about house hacking.
Related Article: How To Get Free Housing For Single Moms
Frequently Asked Questions
Here’s a look at common questions when it comes to house hacking.
The government will likely require you to claim the money you make from house hacking on your tax returns.
You’ll want to keep track of how much money you earn and keep track of the expenses you put into your house hacking ventures as well.
Talk with your accountant to learn more about whether or not you might have to pay taxes on income that comes from house hacking.
The easiest way to house hack can vary, but you may find it easiest by renting out a spare bedroom in your home or space in your basement or garage for storage.
That way, there’s no additional work to be done, such as finishing a basement level or purchasing a multi-family home.
You may be able to house hack if you don’t own a home. If you are a renter in a home or apartment that has an extra bedroom, see if your lease allows you to sublet the space.
Is House Hacking Worth It?
House hacking can be an amazing way to pay your mortgage off early, achieve financial independence, or reach other monetary goals.
Learning how to house hack in the way that best fits your/your family’s lifestyle will take some work, as will determining what the state and local laws are for renting out a portion of your property.
However, you may find the benefits well worth your efforts!