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What is House Hacking and How is It Best Done?


Trying to find a better way to generate income by using the property that you own is something that many take advantage of so that they can pay their bills. House hacking is a great way to jumpstart that process by renting out parts of your property. This money can be used to pay a part of your mortgage and other bills, no matter what type of property you own.

What is House Hacking, and How is it Best Done?

House hacking is the act of renting out a property where you live either in a multifamily unit or a room within your own home to supplement your income. The difference between this and renting out a separate property is that the property being rented is where you live and not a separate dwelling. It is best done when you have set aside a certain place for someone to rent and make it accessible for them. You must be prepared to take on the role of landlord, also since you will have renters onsite.

House hacking is something that many folks throughout the country have considered as a way to supplement their income when there is a demand. Depending on where you live, if it is a working area or an attraction, you have options for renting and can determine when you want to rent the property.

House Hacking in a Multi-Unit Dwelling

If you have a home that is layered with several units like condos or apartment-style, it is very easy to take on house hacking and rent out a portion of your property. As long as those units have separate entrances, this makes for a great option to rent out the space. Some homes are designed with these units in place already. You can also convert parts of your home to multi-unit. Specifically, basements can be turned into small apartments and are great for generating substantial income.

These properties are great for rentals that are either vacation or monthly rental options. You can get a higher monthly or weekly rent for spaces that are private and allow their own access to the property.

House Hacking in a Single-Unit Dwelling

Depending on the design of your home, you may be able to bring in a roommate and rent out a room in your home. This option works better if you live alone or just recently purchased a home and need help with the mortgage. You will interact more with the tenant through this layout because it requires direct contact. You are also limited on what you can charge for rent since there isn't a lot of privacy to offer or promote in the area.

House Hacking With a Detached Space

If you have a separate garage or pool house with a separate room on your property, you can use that space as a house hack to rent out. These areas are often designed for guests to enjoy when they are staying over, so they are easy to convert into a standard rental property. Again, this is a great option for vacation rentals if that is the route you want to take through a third-party site. You can limit when you have tenants and can generate weekly rates instead of monthly.

Things to Know Before House Hacking

There are several things to keep in mind before you start house hacking and renting out portions of your personal property.

  • Local ordinances
  • Is the property designed for rentals
  • Is there a demand for rental properties
  • Do you have the funds and time for investments
  • What is your stance on controversial issues like pets and smoking

Local Ordinances

One of the areas you may not consider checking until you get a knock at your door is the local ordinances and determining if renting multi-units in your area is possible. If there isn't an ordinance against it, then you should be all set to move forward with your plan for house hacking. However, if there is an ordinance or guidelines in place for it to be effective, make sure your property meets those guidelines.

Is the Property Designed for Rentals?

If you are considering house hacking, you want to make sure you have the area designed as a rental property. Even if someone is renting a portion of your home, they need to have some privacy and their own space when renting. This includes a bathroom, entryway, and even a place to store food. If you already have that separate area established, then you do not need to make as many repairs.

Is There a Demand For Rental Properties

By checking with local realtors, social media inquiries, or just knowing that you are in a vacation area, you can gauge the demand for rental property needs. Depending on where you are, the need may be either a monthly need that is semi-permanent for residents or a vacation rental where you rent out for a week at a time.

Do You Have The Funds or Time To Invest?

While the purpose of house hacking is to generate additional income for you, you do need funds to start up and prepare the property for tenants. Also, you need to make sure you are going to dedicate the necessary time to the project if you take this on. Being a landlord is a 24/7 job, and you could be needed at any time for any emergency. Even if you decide to go on vacation, you will need to designate someone to be available and assist with any issues that arise.

Establish Rules Over Controversial Topics

When it comes to rental properties, there are two issues that can be troublesome, and you will be forced to make a decision as a landlord. These are allowing pets on the property and smoking on the property.

Smoking is easy, if you simply do not allow it within the home, tenants who do smoke will have to step outside for each cigarette or choose not to rent from you. Once you allow smoking inside your home, your walls will carry that smell, and you would have to do extensive cleaning to remove the nicotine from the area.

Pets, however, can be a touchy subject because you may have pets of your own. If you are renting the property in a single-home dwelling, and you have your own pets, you need to be careful with pets that you allow from your tenants. It may not be a good idea if they cannot get along with your pets. You need to also consider allergies that you may have to certain pets and restrict them from the property.

If you have a separate space from your main living area, like a multi-unit home or a detached area that you are renting, you may be more inclined to allow pets on the property for the tenant. Even if you do decide to allow pets, keep in mind that everyone may not clean or manage their pet the same way you do. You can take advantage of a pet deposit that may be used to clean the property once the tenant leaves.

Benefits of House Hacking

Once you have decided to move forward with house hacking on your property, there are a few benefits that you will get to enjoy right away that let you know you made the right decision.

  • Additional income
  • Increase future investment properties
  • Increase property value with renovations

Additional Income

The first reason that anyone takes on house hacking is to generate additional income. Finding that side hustle that is passive income is great so that you can pay your bills and start significant savings with your finances. This income can help pay the actual mortgage on the home so that you do not have to worry about it when months are tighter at different parts of the year.

Increase Future Investment Properties

Once you get a knack for being a landlord and start generating savings, you may find that more investment properties are in your future. You can utilize these funds to cover the mortgage on another rental property and extend the income that you have coming into your home. You can either create the additional units on your property or purchase a separate property that is great for privacy and offers a more permanent space for tenants.

Increase Property Value

When you make renovations to your current home so that it can be established as a rental property, you are improving the value of the home. If you were to sell the property, you would see that the value would increase significantly, and you would be able to include the ability to generate additional income.

FAQs About House Hacking

Is it required that I own my own home for house hacking?

Actually, you could technically rent a property currently and then sublet a room or space to a roommate to help with the monthly expenses. If you are looking to advertise your rental space on places like VRBO or Airbnb, however, you would need to own your home.

Do I Need to do monthly rentals or weekly rentals?

The answer to this question is based on your location and what works for you. Depending on the demand in the area, if you live close to a beach or other destination location, you could make more in weekly rentals, especially if you have a multi-unit location. You can set your own prices and rent out the property when you want through websites like Airbnb. If you are only renting out the area for a part of the year, then you can make these limitations. When your area has a demand for weekly rentals, you could generate more income than with a monthly rental.

If you are renting a room or space inside your home, however, you probably do not want a lot of strangers coming through and want a more permanent tenant through monthly rentals. If you are not in a vacation area or a place where visitors would like to board for the week, then you may only have monthly rentals as an option.

Can I Finance My House Hacking?

If you need funding to make renovations or want to extend your home for more units, you can take advantage of traditional loans to get the funds upfront and make the renovations necessary. You can choose from a variety of loan options and get as much funding as you need.

After a year or two of house hacking, you may decide that you want to pursue another property and need a loan for that purchase. You can choose from a number of loan options, including an FHA loan to help secure the property and continue your income.

Is My Operating Cost Worth It?

In order for the rental property to be worth it, you need to be able to at least cover your mortgage and have a positive net on the rental property. House hacking is not meant to put you at a loss. if you do the math and your mortgage cannot be covered and you find yourself having lots of operating expenses for this project, then the side hustle is no longer beneficial. It is important to note that just because house hacking can be done, doesn't mean everyone is going to get the same financial gain from the investment.

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Lily Wordsmith

Written by Lily Wordsmith

Lily Wordsmith is a freelance writer who has had a love affair with the written word for decades. You can find her writing blog posts and articles while sitting under a tree at the local park watching her kids play, or typing away on her tablet in line at the DMV. In addition to her freelance career, she is pursuing ebook writing with an ever-growing repertoire of witty ebooks to her name. Her diversity is boundless, and she has written about everything from astrobotany to zookeepers. Her real passions are her family, baking desserts and all things luxe.

Read more posts by Lily Wordsmith

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