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House Hacking: How to Make Money in Real Estate By Hustling
I understood the meaning of ‘hustle’ long before I knew the word. Back in the day, I sold candy bars at school to make some extra cash (and yes, I came up with the idea long before Randy was doing the same in The Wire. Great minds think alike. 😉) My mom knew I was that kid who never took no for an answer, so she always sent me into the store to make returns that were maybe, sorta, definitely past the return window (when you have kids, you can’t always make it to the store on time.)
Having hustle means you can always find ways to make money. That’s why I’m here to tell you about house hacking, which is a great way to make some extra cash out of something you’re already paying for, your home. Let me show you how.
What is House Hacking?
House hacking sounds a bit shady, but it’s a legitimate real estate investment strategy where a homeowner (or even a tenant) rents out a portion of the home they live in to help subsidize housing expenses.
With a serious lack of affordable property available and rising prices, house hacking is a great way for people to get started in real estate investment.
Generally, lenders charge higher mortgage rates and require at least a 20% down payment for investment properties if you plan to rent to tenants. However, suppose you’re willing to live in the home yourself (usually the requirement is at least one year). In that case, you can often reduce your down payment to as low as 5% and pay lower interest rates. That could save you thousands.
Today, many people are house hacking to reduce or eliminate their mortgage costs (and maybe even turn a profit) while increasing the value of their real estate and saving toward future investments. House hacking can be quite a lucrative way to get started in real estate investing.
House Hacking Ideas for Homeowners
There are several ways to use the house hacking strategy to your advantage. If you’ve got a duplex or your space is divided into apartments, renting out a unit is the easiest way to cover your costs. You could also rent out a room (or your couch) on platforms like Airbnb or VRBO.
What if your extra space isn’t suitable for living? No problem. There are lots of other ways to make money from your property. Check out these ideas:
1. People on Peerspace are looking for unique spaces, including rooms, gardens, or even rooftops for events, media shoots, and parties.
2. If you’ve got an indoor or outdoor pool, a basketball court, or a workout area, you’ll find lots of people willing to pay hourly rates on Swimply.
3. If you can rent out your garage or barn for storage or creative studio space, try looking for renters on STOW IT.
4. Don’t have a vehicle or have an extra parking space? People always need additional parking. Rent yours out at a monthly rate. You can list it on sites like NextDoor or Craigslist.
The amount you can charge for these rentals will depend on the features you can offer clients. Rates can vary with factors like location, amount of space, lighting, heating, etc. Take a look around and see what other people are charging in your neighborhood, and price accordingly.
What if You Don’t Own a Property?
Generally, homeowners are the ones to benefit from house hacking, but what if you rent?
Fortunately, you can reap house hacking rewards too. Let’s get real, many landlords won’t jump at the chance to let you make a killing off their property. Some, however, prefer to be hands-off and might allow you to divide the space and sublet to other tenants. If you want to convince your landlord to let you keep the profits, you’ll need to give them something in return, such as:
· A long-term contract
· Payment of property taxes and/or utility bills
· Responsibility for maintenance on the property
Make sure you know the pros and cons and can explain the benefits to them ahead of time. Then, get things in writing before going forward with the plan.
They’ll benefit from a consistent income, reduced mortgage expenses, and less responsibility for the property. At the same time, you’ll be able to collect regular rent without putting out the capital needed for homeownership.
Are there Legal Issues with House Hacking?
Some areas have restrictions on certain types of rentals. If you go against regulations and bylaws, you may face fines or lawsuits. So, check with your local zoning and bylaw departments, your insurance company, and possibly a local real estate lawyer to make sure you’ve covered your bases.
You may also want to run your plan by your accountant or consider getting one. You do have to report income on your income tax return. Still, you may also be able to offset any gains with related expenses, such as maintenance and utility bills.
Short-term Sacrifice for Long-Term Gain
House hacking requires some hustle and a certain amount of tolerance towards sharing personal space. That said, if you can handle people in your pool, a spare guest room, or parking in your spot, you can cut down on your housing costs, potentially massively. It’s a give and take, and it may not be for everyone.
However, if getting some extra money coming in sounds good to you, I can guarantee you, you’ll get better returns than trying to sell candy at a markup. Trust me, I speak from personal experience.