What is House Hacking?

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According to the U.S. Bureau of Labor Statistics’ Consumer Expenditure Survey, the average American household earns $84,352 annually. About 35% of this income is typically spent on housing. However, there’s a method that can significantly boost your income, help with your mortgage payment, and free up money for other bills, retirement, or financial independence goals. It’s called house hacking.

House hacking is an innovative way to reduce housing costs, build wealth, and get involved in property management. It’s a simple concept – you leverage your property to generate rental income. This can be done by purchasing a multi-family property and renting out the units you don’t occupy, or by renting out extra spaces in your current home, like bedrooms, garages, or attics. The ultimate goal is to offset some or all of your housing expenses, and if done well, it can even lead to owning more properties.

If you’re a prospective homeowner with limited resources, house hacking could be a cost-effective entryway into real estate investment, requiring no additional investment. The traditional house hacker would buy a multi-unit property, live in one unit, and rent out the others. Depending on the property, the rental income could cover most or all of the mortgage payment. In essence, house hacking offers the potential for free or low-cost living while building equity and generating cash flow.

House hacking offers several benefits, including affordable financing options, a simple entry into real estate investing, and tax deductions. Financing a property as an owner-occupied primary residence is more advantageous than financing an investment property. It allows for smaller down payments, better loan fees and rates, and reduced monthly mortgage payments. House hacking also minimizes the amount of capital tied up in rental properties, making it accessible to individuals on a tight budget. Additionally, homeowners who convert their property into multiple rental units can benefit from tax breaks and deductions.

To successfully execute a house hack, it’s important to consider zoning laws and Homeowner Association (HOA) rules. Some house hacking strategies include living in one unit while renting out the others in a multifamily property, converting a bedroom into an independent suite, setting up short-term rentals through platforms like Airbnb, sharing your home with roommates, or building accessory dwelling units (ADUs).

When it comes to financing, purchasing a primary residence for house hacking is usually cheaper than financing a property solely for rental purposes. Interest rates are generally low, and down payments are affordable. Some common options for financing or refinancing a property include conventional loans, conforming loans, FHA loans, and VA loans, each with their own advantages and requirements.

Explore the world of property investment! 

Real estate is widely recognized as a reliable way to build long-term wealth. House hacking is a lucrative strategy to use your own asset to cover housing expenses and get into property investment without buying a rental property. Don’t own a property yet? No problem. With Foothold, you can enjoy the benefits of property investment. Our fractional real estate model allows both experienced and new investors to fractionally invest in vacation rentals that generate income. Visit our website to discover our range of properties and find the perfect fit for your needs.

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