We are tapped into the spring season, and as the weather warms up the motivation to take action is beginning to reignite itself. If you are considering taking the steps to becoming a homeowner in the near future, one idea to consider is the house-hacking approach.
Why House Hacking?
For those who are unfamiliar with this term, house-hacking is when you purchase a home — usually a small multi-family property — and live out of one unit while renting out the others. For example, let’s say you decide to purchase a $200,000 duplex and your payment to maintain the home each month is $1,700. This may include your mortgage payments, taxes, insurance, utilities, and home repairs spread out over the course of the year. If the rental rate for the market is $1,300/month, you could rent out the other two units and not only be left without any out of pocket housing payments, but actually generate a profit from rental income — in this case $900/month
Do I Want The Responsibility?
The only downside to this approach is that you will be held responsible for the management of the building as a landlord. However, you also have the option to consider hiring a property management company to take some of this burden off of your back. In the Philadelphia area there are numerous qualified property management companies around. They can market and help you rent out your non-owner occupied units, and take care of the responsibilities that you would otherwise be required to do on your own. Maybe you would prefer to self-manage and not pay the fees (property mgmt companies will charge you 7-10% of the rental income to manage the units) in order to outsource the management of your building. But it does remove the excuse of it being such a burden to play the role of landlord.
If you have the upfront costs (down-payment + closing costs) to purchase a home, house-hacking could be a wise financial decision for you. Not only do you lower or eliminate your cost of living, but if you buy somewhere where home values are steadily increasing, or decide to force the appreciation of your home through a renovation, it is also an opportunity to begin building equity.
Can I Afford A Multi-Family Home?
You might be thinking to yourself about whether you can afford to purchase a duplex, a triplex or a quad. It’s important to be aware that there are programs and grants available to help soften the costs for first time home buyers, and newer products are being created to support millenials in their coming of age. However, if after exploring the possibilities you understand that our current market has priced you out of a multi-family home, something to consider is using this same approach with a Single Family Home
Applying The Approach To A Single-Family Home?
Purchasing a single family home is certainly a more affordable option, and as opposed to leasing out additional units like with a multi-family, you can consider putting your extra rooms up for rent on AirBnB. AirBnB rental numbers are increasing across the country, especially in Philadelphia, so much so that we are also seeing AirBnb property management come about increasingly too. Again, this management piece rules out the large burden and responsibility piece of renting out your space. AirBnb property managers also tend to take their cut from the profit made from the room and boarding payment, so the cost of entry with something like this is low. In Philadelphia, you can rent out your rooms with AirBnB for up to 30 days at a time for a maximum of 180 days in the calendar year
So what do you think? Does house-hacking sound like an approach you could see yourself taking to purchasing a home? Or does it seem like too much of a responsibility, or unappealing that you would potentially have residents you are unfamiliar with so close to your living space? I’d love to hear your thoughts about it