{"id":1155,"date":"2020-12-28T06:00:36","date_gmt":"2020-12-28T11:00:36","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=1155"},"modified":"2024-04-25T23:20:05","modified_gmt":"2024-04-26T03:20:05","slug":"the-house-hacking-trend-when-a-house-is-a-rental-property-too","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/the-house-hacking-trend-when-a-house-is-a-rental-property-too\/","title":{"rendered":"The \u201cHouse Hacking\u201d Trend: When a House Is a Rental Property Too"},"content":{"rendered":"\n
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House hacking is\u00a0the art of making a primary residence out of an investment property, having rental income cover the homeowner\u2019s costs. Millennial Money<\/a><\/em> calls it a way to \u201cuse other people\u2019s money (tenant rent) to pay down the mortgage and live for free.\u201d<\/p>\n\n\n\n

Of course, this is not a new idea in real estate investing,\nbut millennial buyers may have rebranded it as a solution to a problem\nafflicting their generation. Younger home shoppers can quickly hit road blocks\nbuying a home. Reasonably priced homes are in low supply and high demand. This\nimbalance has continually pressed home prices up, making it hard for first-time\nbuyers to enter the market. <\/p>\n\n\n\n

Hopeful buyers may read websites that tout house hacking as\nthe best pathway to financial success. The housing market is on a roll; why not\ntap into the market for income? <\/p>\n\n\n\n

Some hold investment properties only as long as they need\nto. Other home hackers repeatedly buy, building equity as they go and saving rental\nincome for future down payments. As experienced investors can qualify for\nlarger loans, their buying becomes more lucrative over time. <\/p>\n\n\n\n\n\n\n\n

Choosing the Right House to Hack? It\u2019s a Balancing Act.<\/h2>\n\n\n\n

Some people buy a duplex property. It\u2019s a great way to retain\nprivacy, and to pick the people who\u2019ll be living live next door. Others buy\nhomes with accessory dwelling units or small cottages on the properties. Other\nset-ups could work, including basement or upper floor apartments. Helpful elements\nare separate entries, kitchens, bathrooms, and laundry nooks.<\/p>\n\n\n\n

It\u2019s a balancing act to pick a location that will attract\nreliable renters, yet one that\u2019s not too expensive and too highly taxed. It\ntakes some careful research to know the relationship the price of the house and\nits potential return on the investment. <\/p>\n\n\n\n

The house hacker must keep the house long enough for the\ninvestment to make financial sense. Those who draw enough rental income can make\nextra mortgage payments to lower the debt principal. In this way, they build\nequity faster, and profit earlier if they sell the property. <\/p>\n\n\n\n

Again, location is key. The buyer must take into account all\nthe costs: closing fees, mortgage principal and interest, home and title\ninsurance, property tax, repairs and general maintenance. There can be dry\nperiods between tenants or when the existing tenants become unable to pay the\nrent for a month or more. If homes in the area have a very good track record of\nappreciation, those costs will be offset. Given the inevitable fluctuations in\nreal estate values and the unpredictability\nof the job market<\/a>, buying a home in a popular and resilient\nneighborhood is essential.  <\/p>\n\n\n\n

Getting Approved for a Mortgage: What Works? <\/h2>\n\n\n\n

Mortgage professionals point out that getting a mortgage for a multi-unit house<\/a> is not the same as getting a regular mortgage. The underwriting guidelines differ. And the borrower needs a higher credit score. Fannie Mae requires 680 \u2014 in contrast to a minimum score of 620 for buying a single home.<\/p>\n\n\n\n

Yet the mortgage specialists add that your array of options is broader if you\u2019ll be living in your investment property as opposed to being a distant landlord. So, house hackers may be eligible for low-down payment\u00a0FHA loans<\/a>, VA loans, and conventional loan plans such as Freddie Mac\u2019s Home Possible\u00ae. Insurance premiums, too, can be lower when an investor-owner lives onsite. The rationale? Owners whose investment properties are also their primary residences tend to do proactive maintenance \u2014 averting hazards, incidents, and claims.<\/p>\n\n\n\n

Where the buyer will not be putting 20 percent down on the\npurchase, private mortgage insurance may be a necessary element of the\ninvestment. Accepting a private\nmortgage insurance<\/a> requirement is one way to get financing that\nwould otherwise elude the beginner. If the buyer can pay the loan down monthly\nand obtain a healthy appreciation in the home\u2019s value, regular rental income\ncould help the owner refinance the loan later, under better terms.<\/p>\n\n\n\n

\u261b<\/strong> Fine print<\/em>: Mortgage\npayment amounts and PMI premiums appear on the borrower\u2019s loan estimate<\/a> during the approval\nprocess, and in the closing disclosure<\/a> during preparation\nfor closing.<\/strong><\/p>\n\n\n\n

A Rundown of Common Benefits and Pitfalls of House Hacking<\/h2>\n\n\n\n

Weighing the pros and cons? Here\u2019s an outline to start.<\/p>\n\n\n\n

Assume the buyer has checked local ordinances and zoning\nrules, to ensure rental homes are allowed, and that the section of the house to\nbe rented out is a compliant residential unit. Under the right circumstances, multiple\nrewards await the investor-owner who lives in the home: <\/p>\n\n\n\n