Real estate is the business of buying, selling, leasing or managing properties for profit. To the new real estate investors, getting into the market may seem so daunting. But there is a concept called “house hacking,” which gives an ordinary person an opportunity to get involved in real estate in an efficient manner.
This strategy involves the use of a property to live in while the remaining parts are rented out to other people thus helping the owner in paying for the house. This is another strategy that is being adopted by people starting the business due to the low cost while making profits. This way is less risky for those who want to start investing in real estate: by living in one part of the property and renting the other.
What Is House Hacking?
House hacking is a process of purchasing a multi-unit house for example a two or three –unit house and occupying one unit while renting out the other units (https://retirejapan.com/forum/viewtopic.php?t=1113). On the other hand, other investors buy single family homes with some extra space such as a basement, or a guest house, and lease out this space to occupants.
This way, the homeowners are able to pay for their mortgages and some other expenses they have from the rent they charge. First of all, it is a perfect starting point for those who want to invest in real estate because house hacking allows covering the personal need in housing and making money at the same time. This over time can result in a financially independent trader who can invest in bigger and better market issues.
The Benefits of House Hacking
Another advantage of house hacking is an option to eliminate or at least minimize the housing expenses. Actually, the rental income obtained allows pay off the mortgage, property taxes, and insurance so investors can live better. Also, house hacking comes with its benefits such as gaining real-life experience in property management.
Newbies to the business of being a landlord can be taught how to deal with tenants, problems, repairs as well as the management of collections, all within the comforts of the same home. Such practical exposure can be very useful for individuals and companies who intend to diversify their property portfolio. In addition, the income that is earned can be channeled back into future real estate investments and thus increase the accumulation of wealth.
Financing a House Hack
Housing hack funding usually proves more accessible than conventional funding meant for an investment property. This is because the buyer resides in one unit; therefore, most lenders regard it as an owner-occupied property, which attracts a lower rate of interest and better loan conditions.
Aside from that, some first time home buying programs such as FHA loans enable buyers to make a down payment of only 3%. To be paid on the purchase price of the car, the amount of the charges shall be five percent of the price. This has helped novices enter the market without the need to invest a huge amount of capital in the first instance.
Finding the Right Property
Selecting the right property becomes very important when carrying out the house hack strategy. New entrants should focus on buildings containing more than one unit or individual houses that have other units that can be rented out in areas with high demand for rental units (learn more here). Areas that are near colleges, business areas, or well-established neighborhoods are likely to attract good tenants once the property hits the market.
It is also necessary to take into account the condition of the property that the business will be situated. Despite this, there are some areas that may need repairs or updates and newbies should not invest in property that needs serious remodeling unless they have the time as well as capital to work on the property. This is why a physical visit is important and proper analysis of the available units in the local rental market.
Managing Tenants and Property
In house hacking there is the issue of dealing with tenants especially when you are living in the same compound. It is advisable to establish proper working relationships’ protocols right from the start so that there are no issues later on. Despite the fact that tenants are living in close quarters with each other, it is pertinent to always cultivate a business-like relationship with them.
The landlord and tenant should be prepared for the following tips in order to have a good experience: The preparation of elaborate leases, physical inspections, and frequent communication between the landlord and the tenant. Many real estate investing tips say that for newcomers, it can be a great chance to get an experience in how to manage tenants, how to solve maintenance problems and how to collect rents. The skills attained in this process will be of value in relation to the acquisition of larger ventures.
Therefore, house hacking is a good way of investing in real estate especially for first-time investors. It also provides an ability for people to meet personal requirements for shelter while at the same time obtaining a source of rental income that decreases costs and creates equity. Hence, if one acquires the right property, the right financing and has proper management skills, house hacking can be used to transition to bigger real estate investments. For the newcomers it is an effective way to get acquainted with the principles of functioning in the real estate market without high risks.
