What if I told you it was possible to buy a rental property and live in your own house for FREE? Although it may sound too good to be true, it’s not all that far fetched. In this article we’ll break down the best way for newbie investors to get started.
What is House Hacking?
House hacking is the concept of buying a 2-4 unit property and living in one of the units while renting out the remaining units. Not only does this give you a place to live but, it also kickstarts your investing career with a lower level of risk. House hacking has become a very popular method for real estate investors to get started. The biggest monthly expense for the majority of Americans is their housing. The premise is, you are getting the ball rolling by buying your first property while also saving a large amount of money that can be funneled into more properties. If this strategy is executed correctly, you could even be getting paid to live there
What are the Benefits?
This is the perfect way for an investor to get started. Or, maybe you don’t necessarily want to be an investor, but you want a way to buy a property and live in it for free. One of the main benefits is the financing options. Since it will be the buyers primary residence, there are tons of financing options available. A popular option is the FHA mortgage. With FHA, a buyer can buy a 2-4 unit property while only putting 3.5% down. Therefore, not only can you buy the property with little out of pocket, the rent collected could also cover your payment!
Another appeal is the low risk level. Since your primary residence and rental property is combined in one mortgage, your not over extending yourself. You need a place to live no matter what. In the event you aren’t able to collect rent from the vacant units, you would still be paying a mortgage had you bought a different property anyway. The end result is, you’re stuck paying a mortgage either way, the rent collected is just a bonus!
Example
For example, lets say you buy a triplex for $300,000 with an FHA loan and move into one of the units while renting out the other two.
- $10,500 down payment
- $2,250 monthly mortgage payment
- $1,200 monthly rent per unit
Effectively, you are bringing in $2,400 a month while your mortgage payment is only $2,250. That’s $150 extra every month going into your pocket, while you’re living there for free! Now, with home ownership comes other expenses. Be sure to budget for utilities and unexpected repairs.