“HOUSE HACKING”
Today, I’m going to talk to you about a new real estate term that you hear these days. “House hacking” is a real estate term that has gained traction with agents and interested home buyers in recent months. It refers to using a specific loan type to purchase a multi-family home and get all your housing costs covered. That sounds pretty good, right?
How would having no monthly housing expenses, and in fact actually EARNING money from your living situation vs. paying rent or a mortgage, affect your budget and savings? So, let’s explore how House Hacking works and 3 very solid reasons (there are always 3, right?) to invest in a multi-family property.
REASON 1: The Financing Loophole
Did you know that when it comes to loan requirements, “multi-family housing” is technically a property with 5 or more units? That loophole means that for properties with two to four units, an owner can occupy one unit and rent out the other while still qualifying for traditional loan types. FHA loans are a popular option when it comes to “house hacking” because of the low down payment requirements: just 3.5% of the purchase price!
REASON 2: Expense-Free Living
Let’s quickly run some numbers here: say you find a 4-unit property listed for $500,000. Your 3.5% FHA loan requires $17,500 cash (plus a bit more for closing costs). Conservatively, let’s call it $25,000- cash up front. Based on today’s mortgage rates, your monthly payment is likely to be somewhere around $3,000. Luckily, rent is also on the rise due to inflation and a reflection of a housing market that still has low supply compared with demand. It’s likely you can command somewhere between $1,000-$2,000 for each of the three units (remember, you’re living in one). That average of $1500/month for three units comes to $4500, so in about a year and a half, you will have made back your initial cash outlay while also incurring NO living expenses in the form of rent. Now you see why they call it a hack!
REASON 3: Options Abound
Another key reason to invest in multi-family housing is the options it affords you as an investor. After a certain time period, you can decide whether to keep living there, move and rent out your unit for greater cash flow, or sell the whole building at a large profit. If you need a space for an aging parent to live nearby or want to combine two units for higher rent–you just have more options than you do with a single-family property, where you’re paying a mortgage and depending on a market price increase to make your money back when you sell.
Things To Keep In Mind…
Before you get too excited, there are a lot of things to consider about multi-family housing investments. There are primary residency requirements, so you can’t just move out after 6 months. Carefully choose your property and have a good inspection or else you could end up on the hook for costly repairs, quickly eroding that profit margin. There may be existing tenants in the units with leases a new owner must honor. Also keep in mind your own capabilities: are you ready to be a live-in landlord and property manager? If someone knocks on your door at 3 AM saying the dishwasher is pouring water all over their kitchen floor, do you know what to do about that? House hacking and multi-family property investment isn’t necessarily easy, but it can be an incredible path to building financial independence if it’s a good fit for you.
If you are interested in exploring this opportunity, or if you have a property to sell please give me a call. I’m happy to help. I look forward to hearing from you soon!
