House Hacking is Real Estate Investing Too! Here’s How to Do it Right

hack is “a clever tip or technique for doing or improving something.” The premise of house hacking is that you can hack homeownership by turning it into a form of investing and wealth creation. It involves renting a part of your home, such as a room, a basement apartment, half of a duplex, or an accessory unit, to a tenant. House hacking is more common among young homeowners who are typically spending a larger proportion of their take-home pay on housing costs than those who are further along in their careers or living in dual-income households.

House hacking enables the newbie real estate investor to kill two birds with one stone. On the one hand, to meet their own housing need by buying their first property, on the other hand, to start their real estate investing journey. Imagine a young professional buying their first apartment and renting the second bedroom to a tenant. By setting aside the rental income, our young professional can buy a second property a few years later.

There are many variations on this theme, but there are a few things you should bear in mind to avoid problems.

Helpful Hints for Successful House Hacking.

Be aware of tenant rights and laws. Whichever part of the country you live in, there are laws in place to regulate and protect landlords and tenants. House hacking makes you a landlord. For example, you should be aware of anti-discrimination laws when screening prospective tenants, and following the correct procedure when evicting a tenant. You can’t just change the locks and kick out your housemate because they left wet towels on the bathroom floor again. Keep things professional.

Put house rules in place. It’s probably not your first time sharing a living space. Whether you shared a bedroom with a sibling when you were a kid or lived in dorms during college, you need to get along with the person sharing your home or property. If you bought a duplex, living in one unit while a tenant rents the second unit, you will need rules for use and maintenance of the garden, common areas, and parking spots. If you are sharing a house or apartment, you’ll need to agree on the use of common space, having guests over, or a cleaning schedule. Sitting down with your tenant and agreeing to a set of (written) house rules is important. As much as you are the owner of your property, this will also be your tenant’s home.

Have an investing plan. If you decide to house hack as a form of real estate investing, you should have a medium- to long-term plan for the rental income. Paying down your mortgage will make those funds illiquid unless you plan to refinance later on and withdraw equity to buy a second property. Other options include improving the property to force appreciation, putting money into other investments, or saving up a down payment for a second property. Whatever you choose, make a plan and stick to it. Don’t let the money slip through your fingers.

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