House hacking is different from other #lifehack solutions you may know about. We’re not talking about unique ways to fix up a house. House hacking is when you buy a multiunit home, live in one unit, and rent out the rest. In this article we’ll consider if house hacking is worth it and give you house hacking ideas. We’ll even talk about why you shouldn’t house hack – it’s not for everyone!
House hacking in NYC and California will be completely different, for instance. Just consider this the house hacking strategy book for your continued reference. We’ve got 8 tips for house hacking that will give you the knowledge to make an informed decision!
Now, the term “house hacking” is a fancy way of saying “multiunit”. And that’s a fancy way of saying “duplex, triplex, or quadplex”. Having four units or less ensures that your investment remains as a residential property. We’re not talking about buying a big apartment building or hotel – that’s a commercial investment. The main thing to know is that when you purchase a multiunit property, you’ve got to live in one of the units. Your loan company will likely put that in the contract – that you live there for at least a few years. It can allow you to have your own mortgage paid for by your other renters. Knowing you have others nearby can offer some security as well. There’s really a lot of things to consider and we’ll get in to that with these 8 tips for house hacking:
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The first tip is that you want to know why the owner is selling. If it’s because of something personal in their life it’s not going to matter much to you as a buyer. What you’re looking for is if there’s a problem with the property itself. If the tenants are a hassle or there’s structural damage; you may want to think twice about buying. Of course you’ll do inspections and the seller will have to disclose any major repairs needing to be done. But you’ll want to be friendly and casually make sure there’s no other issues you should know about. This is really where getting to know the seller comes into play. You don’t want to be disingenuous but you do want to get down to brass tax. See if there’s anything they’re kind of trying to hide.
So then the second tip is to actually start gathering some basic information about the property. Your real estate agent is your number one source for getting that information. They’ll be able to hook you up with all kinds of great information. There are several questions you want to keep in mind as you’re gathering basic property information. What’s the age of the building? Was it built with hazardous materials? You want to make sure all the units are up to code and legal. Buying multiunit housing is going to be a little more complicated than just buying yourself a home. This is a serious investment property that will be earning you income. You’re going to have to get business savvy.
Are there current tenants?
Third tip is to find out who the current residents are? You want to know who your neighbor is going to be. It’s important to note what each tenant is paying for rent, are they contracted, and how long they’ve lived there. Knowing what the tenant turnover is and if there are problems between tenants – get that information. Obviously, long term tenants are usually better than short term. Short term rentals are a bit more work. Talk to the current renters, see if there are reviews online… Do your do diligence, basically.
The fourth tip to know if house hacking is worth it is to check out the neighborhood. Make sure to drive around the neighborhood at different times of the day. Note who’s hanging around or doing yard work. Is it quiet or are people playing music loud or arguing outside? Again, you’ll be living here and most people want to live in a safe, quiet, clean neighborhood. It will be easier to get and keep good tenants as well. Don’t be afraid to look at the bigger surroundings as well. Like, we’ve all stopped in a liquor store, right? But do you want it right next to your house? What do the businesses in the area look like?
You’re a Landlord Now
The fifth of the 8 tips for house hacking is to reduce your risk as the landlord. This is not so much a house hacking idea but common sense. Putting yourself at risk is not something you want. You need to have the resources to safely invest in a multiunit property. You can eliminate some risk by educating yourself. Congratulations – you’re off to a good start! Having a good inspector is key. Talking to your future tenants about any issues they have is a good idea too. You will also want to learn about being a landlord. If you need to evict someone you should know your rights and theirs.
The six tip for house hacking is knowing the turnover expenses for cleaning, trash, repairs, and maintenance. Being a landlord is being a business owner. You have to know your bottom line for what you’ll make opposed to what you’ll spend. The goal is to have your rent and all the property costs paid for. You will be the one in charge of making repairs and keeping units up to date so, will you hire out or do it yourself? It can be a full time job in some cases. Calculate your capitalization rate. This is why I can’t stress this enough – get a quality unit in the first place.
Seventh Tip – A great way to know if house hacking is worth it is to figure out your cost as a landlord. You need to know what your expenses are going to look like. This includes the upkeep of the common areas, property taxes, insurance, mortgage, etc. Maybe even property management if you want to use it. There’s several things to consider regarding if they’ll be paid by you or your tenants: Water and sewer, utilities and any defaults. Utilities include gas, water, and electric. If a tenant defaults on a payment, it may come back on you. Pest control, property taxes, and insurance are something to consider as well. You’ll have to take rent money and save it to use for these sorts of things. You will need a copy of the existing lease agreements. It’s not feasible to just change things around.
So the eighth and final tip is to not skip your property inspections. The structural integrity of the building (the roof, furnace, hot water heater, the windows and the HVAC system) is important. Those things could add up to a huge amount of money if you don’t get them inspected up front. Now, something to factor in is your capitalization rate. Also, you’ll want to learn how to perform a cash flow analysis. If you have a great real estate agent on your side, you’ll do well. So start now and get matched up with a great agent! View the form at the bottom of this page to get started.
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