Join the 3,000 people getting fresh weekly insights about proptech and the real estate industry.

If starting a rental home business intimidates you because of many homeowner obligations, then why not consider house hacking? It is a good way to get you started as a landlord by learning the ropes first until you’ve gained enough confidence to go full scale. 

House hacking is renting out a portion of your primary home and then using the rent collected to offset your housing expenses. A specific space in your home that you rent out is also called an in-law unit. Keep in mind that even if you’re only renting out a small space, you must still abide by all the applicable rental laws. 

In this blog, we will focus on why house hacking is considered a good method to slowly get into the rental game and how to build a portfolio with fewer risks.

 

 

 

Advantages of House Hacking

 

Here are some of the many benefits of house hacking that can help you when you’re just starting in the rental business. 

 

You Get to Live on the Same Property

Living in the same property allows you to oversee your business conveniently. The proximity to your rental space lets you manage it well, building a good relationship with your renter.

 

Less Housing Expense 

By house hacking, you now have less worries about the high costs of homeownership because the rent you collect helps subsidize the cost.

 

Maintenance is More Manageable

Responding to maintenance requests or making quick fixes can be done quickly because communication between you and your resident is more efficient and swift. Inspecting the property to ensure it stays in its best condition is easier to schedule with your renter. It’s also a quick walk to the rented space to see the unit’s state.

 

More Financial Benefits

House hacking can provide more financial benefits other than rental income. 

Man encoding financial data on computer

 

Tax Savings. The depreciation on your rental space in your primary home is tax-deductible. Fewer taxes owed mean more savings. When you finally move out to advertise your entire home for rental, you can also deduct the depreciation expense of the whole property from your taxes.

Equity Builder. With rent income going toward mortgage payments, you can build equity on that property much faster. With that equity, you could refinance your home and use the funds for home modifications or a down payment to buy a new property.

 

 

Successful House Hacking

 

There are two ways that you could navigate the rental business successfully through house hacking.

 

Taking the DIY Route 

To make your house hacking venture successful, you must be willing to put in the work and keep up with your obligations as a homeowner. This means making sure you are providing your renters a habitable space, addressing maintenance requests quickly, and giving them a safe, comfortable, and quiet environment within the property. Design your rental space or in-law units with a separate entryway to give your renter some privacy. 

Being a DIY owner lets you learn the trade at a less overwhelming pace. You also get to know more about your renters and their needs because of your proximity. You can easily practice your handyman skills as you handle maintenance issues and get first-hand learning experience on home features that matter to them.

 

Partnering With a Property Manager

If you house hack but aren’t too keen on actively managing your small rental, you can consider enlisting the services of a tech-enabled property management company. They can work on your behalf and manage your rental income through their automated rent collection. Their 24/7 maintenance support gives your residents the confidence that their maintenance requests will be dealt with right away.When you decide to rent out the entire property, they can advertise it on premium listing sites to gain maximum exposure and find you high-quality renters.

 

 

Searching for Properties Fit for House Hacking

 

To safely get started on this investment strategy, here’s what to look for when buying properties intended for house hacking:

  • When buying a single-family home, look for one with additional spaces that you can convert to another fully-equipped living space.
  • To reduce your home modification costs, find a home with a finished basement complete with a small kitchen facility and a bath.
  • Look for properties that let you build additional dwelling units (ADU) that you can rent out.
  • Buy a home with adequate living spaces to make your renter feel comfortable when moving around the common areas. `
  • Consider looking for locations that do not restrict house hacking. Many gated communities do not allow non-owner occupancy, and this might negatively affect your strategy when it’s time for you to move out of that home.

Here are some things you should watch out for to avoid house hacking pitfalls:

  • Check the local zoning ordinances and find out if non-owner occupancies are allowed in single-family or multiple-family properties.
  • Rental space in single-family homes must also be modified according to building regulations and follow the habitability standards to prevent renters from filing a complaint. 
  • Stay within the occupancy standards or the rule which determines how many people can live in a property. They base it on the square footage of the property, septic or sewer limitations, and actual livable space (including bedrooms), to mention a few.
  • If you want to repeat the house hacking cycle, determine the minimum time you intend to live in your home before moving out. Most lenders allow owner-occupancy for at least one year, while others allow for a longer time.
 

Final Thoughts 

 

House hacking can be your initiation into the business of renting, an industry that can be quite profitable.  The Rental Protection Agency reports that the current 115,895,531 renters in the United States grow by 2,654 every day. This renter population is a huge opportunity to build a portfolio of rental homes. Likewise, the low mortgage rate that is still at a 5% level is a good signal to buy properties. 

Consult with a financial advisor to help you do the math and map out an investment plan that fits your goals. If you decide to forgo the rental business later to occupy the entire property completely, then you have at least optimized your investment through the benefits of house hacking.

 

 

 

 

Are you ready to buy that first home or rental property? We can help you