House hacking is a great way for anyone to get into a property and start their real estate investment journey. It is a way to have primary and investment property simultaneously. There are so many benefits to house hacking and especially if you are trying to cut or eliminate your most significant expense AKA rent or mortgage payment. I have had many clients, even in San Diego one of the most expensive markets eliminate or barely have a mortgage payment. This is very beneficial in expensive markets around the country to not fee house poor.
What is house hacking?
It is a mix of buying a primary and investment property simultaneously. It is buying a 2 to 4 unit, living in one, and renting out the rest with the goal to have minimal to zero mortgage payment. You also get other benefits in the form of tax savings, equity gain, learning how to be a landlord and if/when you move to an SFR, you have an investment property.
What are the 5 benefits?
- Low downpayment! The common ways to finance a 2 to 4-unit are with an FHA, VA, or conventional loan. VA loans allow zero down payment, even on a 4-unit property. FHA does allow 2-to-4-unit financing with 3.5% down, if you are doing 3 to 4 units you do have to pass the self-sufficiency test. Basically, the property must pay for itself through a certain calculation. You can house hack in some cases with a small investment.
- Stack more money! Lowering a mortgage payment offset by rental income from the other units allows you to stack cash for another property, have more cash to spend on other bills, put more money into retirement or have an overall better lifestyle.
- Buy a nicer property/location! Buy in a nicer location because the offset of the rental income from the other units helps you have more buying power when qualifying for the mortgage.
- Flexibility! If you must move for a job, move into a bigger unit, into a bigger house, you don’t have to sell or worry about what you are going to do with the house. If you have units, you can just move out of your unit, rent out the unit and cash flow, and move from a 1 bedroom into a 2 bedroom in your same property. STR is one of all of your units to maximize cash flow. Lots of possibilities.
- Family gifts downpayment! Parents or family can gift your down payment and even co-sign to help qualify for the mortgage. It is a great way for parents to help their children purchase a property, get into the real estate game and help keep their payments low.
The opportunity to refinance in the future, and lower your rate/payment will help generate more cash flow and eliminate your mortgage payment is real. FHA/VA streamline refinances (NO income, assets, appraisal, and credit are so easy and beneficial in the future when rates drop.
Questions about house hacking please reach out!