- House hacking is an investment strategy in which you live in one unit or room of a house you own and rent the others out.
- House hacking can help cover your monthly housing costs and help you generate income.
- House hacking can also help you qualify for low-down-payment loans reserved for primary residences.
Residential real estate has long been known as a wealth-builder. You buy a home, and as property values rise over time, so do the profits you eventually stand to gain. It’s a perk that’s particularly noticeable in today’s market, where home values are up over 19% in just the last year.
But selling a house isn’t the only way to make money off of homeownership. With a method called house hacking, there may be a way to generate even more money from your property.
What is house hacking?
House hacking is an investment strategy where you buy a home using a low
residential mortgage and then rent out the home to generate income. Many consumers use it as a long-term investment strategy to both make money off of the property and also cover the costs of the mortgage.
“You’re basically purchasing a house with a very low down payment that you can eventually turn into an investment property,” says Devin Moreno, a longtime house-hacker and owner of Profusion Real Estate in Baltimore.
Here’s how it works: You purchase a multi-room or multi-unit residential property with the intent of living in one and renting out the others. This allows you to leverage conventional and FHA mortgage loans, which require as little as 3% to 3.5% as a down payment on primary residences. After closing on your loan, you move into the property, rent out the additional units, and use the rent to cover the costs of your mortgage and property costs.
“Interest rates are much lower for a primary residence than for an investment property,” says DJ Olhausen, a real estate agent with Realty ONE Group Pacific. “In order to qualify for these lower interest rates, the investor needs to live in the property for at least a year. It’s also advantageous because the house hacker will essentially be living in his or her new home for free, because the other tenants are paying rent and, therefore, the mortgage.”
While some consumers use this as a method to simply cover their housing expenses, for others, it’s a long-term investment strategy that can serve as a source of income for as long as you rent …….