House hacking is a technique, where someone buys a property to live in and rents out portions of the property to bring down their cost of living. A high majority of people have done a level of house hacking before. An example would be, living with a roommate during college to bring the cost of renting down. Now, we take those same principals but we buy the house, so other people are helping us pay the mortgage. This works with a single family house or multi-family property.
Most common property types to house hack with, are 4 units and less. This could be, renting out rooms in a single family house. Having a duplex, triplex, or 4-plex, living in one unit and renting out the other units. Depending on how well of a deal you get, these options can become quite lucrative. You also, get your own privacy with the multi-family home option. You do not have to have roommates and you are still getting your mortgage paid for.
Next, is the cost savings. Say you live in a single family home that you bought for $150,000. Mortgage, tax, and insurance would be around $762 for a 30 year loan, with a 3.1% interest rate. Depending on the market, could depend on rents. We live in the Midwest, so rent per room for us is around $400. So, you could add 2 roommates and have your mortgage completely covered, plus a few bucks left over in your pocket. Then you split utilities 3 ways and you are living for around $100 a month out of your pocket. You are paying down an asset, gaining appreciation, and you are not the one paying for it. The power of house hacking in this method is very powerful. We will use a similar example for multi-family properties.
Say we are looking at buying a duplex and want to house hack it. We find a side by side 2 bed/1ba duplex with a one stall garage for $210,000. In the Midwest, this is pretty standard on the market and you can expect rents of around $900 for these units, depending on area, and tenants will cover their own utilities. So, your mortgage, tax, and insurance will be around $1080 a month. You get a renter in at $900 a month, you will then be living privately on your own side, without multiple roommates, and only having to pay $180 for mortgage, and another $200ish for utilities. You will be house hacking, living for $380ish a month, paying down an appreciating asset, and have a property you could rent both sides of, in the future for rental income.
House hacking is a very powerful tool, if you do not want or have the funds to pay for a mortgage on your own. Have people help you pay your mortgage and you can watch your financial freedom, grow at an exponential rate.
I hope you enjoyed the quick read on how house hacking can help you own a house but not have the stress of paying the mortgage on your own.
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-Shaun Tutor
Tutors of Life 