House Hacking

What exactly is it, and how can you benefit from it? Well, house hacking is a term typically reserved for renting and/or buying property, of which you subsequently rent out portions in order to cover the initial costs of the rent or mortgage.

Depending on your background, you would be more or less comfortable sharing living space with other people, especially – strangers. Naturally, when planning or setting goals for your future, sharing your dream mansion with strangers isn’t the first thought that comes to anyone’s mind. But, the current housing market being what it is all around the globe, more and more people are coming to terms with this idea.

How can you benefit?

As previously mentioned, people around the world are struggling to cope with the rapid rise of housing prices. Whether it be flats or houses – if you want to live in or near the larger metropolitan areas – it might just be outside your price range already.

If you guessed that this is where house hacking comes into play, you are correct! As housing prices are on the rise, people look for any solutions available to them. And, of course, the burden of the cost is much lighter when shared.

House hacking allows you to do just that – share the costs of living by inviting a tenant or a subtenant to live with you. If you live in a rental, having a subtenant may help relieve your monthly rent payments. If you live on your own property, a tenant might cover your mortgage or other expenses. Remember, any additional income will go a long way towards building your wealth.

General considerations

If you already live on premises that allow for having a tenant or two – you’re in luck. Whether you own or rent the property, by renting out extra living space, you might be able to reduce some of your monthly expenses by sharing your home.

For example, students all around the world do just that each year. They bunch up together and rent larger flats or whole houses in order to be able to afford living quarters in large metropolitan areas or, simply, closer to their schools.

In the case of students, the goal is affordability. And, it is quite easily achievable, since the average student doesn’t require too much space or privacy. So, renting a multi-room flat and sharing a kitchen and bathroom might not be anyone’s first preference, but it is a necessary means to an end.

When it comes to older individuals, people with families and additional considerations – sharing a flat with strangers might not be preferable at all. Chances are, the older you get, the more privacy and space you will require. Luckily, there are other types of properties, more suitable for such requirements. For instance, two-or-more-part houses that have both separate kitchens and bathrooms. Or properties with multiple buildings – a main house and a guest house, for example.

Should you buy or rent?

There are multiple reasons why one could be exploring house hacking options. Reducing your overall cost of living, however, still remains the main goal. Both renting and/or purchasing a property that you intend to ‘house hack’ with will help you reach that goal.

There are several disadvantages to either, too. For example, renting a property almost always means that you’re putting your capital towards someone else’s wealth. If you possess too many riches already, this might not seem like an issue at all. However, if your end goal is to accumulate as much wealth as possible, handing a significant portion of your money over a longer period of time will not do.

On the other hand, buying a property requires a portion of wealth, too. Sometimes a very large portion of it, in fact. And straight up. See, if you’re getting a mortgage to buy a house, you’re going to have to make a down payment on your house. Depending on your bank’s conditions, the down payment could be anywhere starting from 5% of the property price. UK average mortgage down payment falls right around the 15% margin. That is a lot of money either way, but having it in cash straight up is unattainable for some.

Owning property comes with additional considerations, too. For one, you’re expected to pay tax on real estate you own. On top of that, you can expect costs that arise with maintaining said property. As a tenant, you usually don’t have to worry about these things, as it’s the owner’s responsibility.

As far as advantages go – just swap around the disadvantages. Owning the property might be more profitable in the long term, but require a much larger investment straight away. Renting offers much less responsibility, and you’re not tied down to your property (if it’s your primary residence, too).

Ultimately, your decision should be based upon your current and expected financial situation. If you can afford to buy property, you would be better off by doing just that. Real estate tends to appreciate over time, especially if in a desirable location and well maintained. This is where having a good credit score and enough funds for a down payment becomes really important. Without those, you might just have no other choice than renting.

House hacking as a form of income

If you’re looking for opportunities to invest into real estate, look no further than buying a rental property. As revealed in previous paragraphs, real estate comes at a premium. It’s highly likely that demand for rentals is only going to grow in the future, as housing markets quickly outgrow the purchasing ability of the general public.

There are several real estate investment options, but renting out rooms, parts or entire properties both short-and-long-term are up there with the most lucrative ones. Another option could be a live-in flip, where you buy a property that’s in need of repairs, but has upside (good location, large area etc) and you live there until it’s repaired, and you can resell it with profit.

You can also rent a larger property and have tenants that help you partially or even completely cover your own rent (and then some). It’s important to remember that this might not always be possible because of existing limitations – some landlords have a no-subtenant policy, among others.

Overall, house hacking can be of great help to your real estate investments. Especially if you already own or are looking to purchase real estate – keep an open mind towards properties that may not seem practical to your immediate needs. It’s quite possible the extra room or garden house could become profit-generating down the road.