What if we told you there are property owners with mortgages who live in their properties at zero net cost? These owners have been able to use the home they live in to reduce their housing costs to zero. In some cases, they have also been able to create a positive cash flow for themselves. How is this possible? The secret is a real-estate strategy called house hacking.
What Is House Hacking?
When you rent out a portion of your residential property to generate income that can be used to pay off your monthly expenses and mortgage repayments, it is known as house hacking. Buying a duplex/triplex to rent one or two floors while living on one could be a way to start house hacking. You could also rent out your garage or any spare rooms in your house. A popular arrangement is to design your property so that the building has different entrances on each floor, giving privacy to both you and your tenants while you share the house. People may use a house hacking strategy to gain additional financial independence or live in expensive areas they otherwise could not afford. In areas where rents are as high as mortgage payments, it might even be possible to completely offset your monthly repayments and other expenses, and create a positive cash flow for yourself.What Are The Advantages Of House Hacking?
- You will lower your monthly housing costs by covering expenses using revenue generated by renting out portions of your house.
- You have a chance to completely write off expenses such as insurance, car payments or maintenance fees.
- You can divide your utility bills among the number of tenants you have, reducing the cost for you.
- You can potentially get into the real-estate market sooner and also learn how to be a landlord.
- You can pay off your mortgage faster using the rental income and invest the equity in a second property.
What Are The Disadvantages Of House Hacking?
- You will not get any additional tax deductions, as they are not available for owner-occupied houses.
- You might have to pay capital gains tax on the value of the portion of the house you have rented out when you sell it.
- You will compromise your privacy to a certain extent when you share a house with other people.
- You will have to take on some extra work as the landlord, such as general maintenance and repairs for the tenants.
- The rental yields will differ according to the location of the house. In some areas, it might not be enough to cover your expenses.