DEC 13, 2022
House-hacking is a great way for both new and seasoned homebuyers to get the best of both worlds: being a homeowner AND an investor. As a house-hacker, you're renting out parts of your property to other tenants and receiving rental revenue from them. For most house-hackers, it's usually the first time being a landlord — that comes with a lot of uncertainty and anxiety, below are the top 5 tips for new house-hackers.
This is often overlooked by a lot of first-timers that are just excited to start investing. Speaking from experience, newbie house-hackers will often focus more on their return on investment when they start shopping around. Your first investment should meet your investment goals, but you should also think about your interactions down the line with tenants. Most areas that offer higher-than-normal returns are also higher-than-normal risk (crime, evictions, etc.) which usually isn't the best first investment for any new investor. If you invest in an area of high-return high-risk, you should be prepared to deal with tenants that are going to cause headaches (late payments, bad behavior, not complying with lease, etc.). Most times, it's ok to spend a little extra to buy a house in a nicer area, better areas attract better tenants.
It's true, not all banks are created equal — and neither are all loan products. For many house-hackers, making the decision to buy a multifamily home in hopes of renting out the other units comes with an increase in price tag from traditional single family homes. Often times, first-timers think they have to have a lot more money before buying a multifamily home, but that's not always the case. It's important to make sure the bank you work with can & will count the potential rental revenue of the property towards your approval amount and Debt-To-Income ratios. This is crucial for first time investors because it could mean the difference between an approval or rejection.
Another important bit of advice is taking advantage of low down payment programs available. If you're thinking about house-hacking, as long as your property meets the residential criteria (4 units or less) you can use programs such as FHA loans to lower the overall cash burden you'll have before closing. Low down payment programs almost always require the property to be owner occupied, and with multifamily properties you can do just that while also receiving rental revenue.
Yes it's true –– who you work with matters in real estate, even more so when you start to branch into the world of investing. If you're planning on using an agent to help, it's recommended to have one who also house-hacks or invests. There's a world of knowledge that comes with just having the experience that other agents can't provide. For example, an agent that herself house-hacks can most likely help you with both crunching numbers for a property as well as sourcing reliable tenants when you need to fill vacancies. On top of this, agents that have "earned their stripes" are very open to tap into their network when you need help (e.g. an improvement project). Take a look at the video below to help you choose an agent:
This doesn't often get discussed when thinking about house-hacking, but ultimately the property is a business. There are revenues, and there are expenses — and the bottom line is your profit. To run a business successfully, you need to have systems & policies in place that you can back into when different situations arise. For example, what do you do when a tenant is late on rent? Are you going to accommodate them because they wave hello every morning? Or inform them that the lease you both signed has a fee associated with late payments?
Many house-hackers get shy and anxious when having to face situations like this because it's out of the norm for them. However, approaching the purchase for what it is: a business, will help you to better approach difficult issues with a calmer mindset. Some general rules of thumb that the author (an investor & realtor) sticks to: never rent to friends & family, and always have an attorney review the lease template.
For most things in real estate, the free market decides what the value of an asset is. As a first time house-hacker, you'll most likely have a tendency to lean towards assuming your units can be rented for higher than what the market deems. This is mostly normal behavior because you might not be super familiar with the process or market just yet. The top bit of advice here would be to look at available rental listings that are similar in offerings (bedrooms, bathrooms, amenities, etc.) and what they're renting for. If you notice that a particular apartment listed for rent has been sitting empty for a long period of time, it's a strong indicator that the rental amount is too high for the area. Although there are tools available online to gather the average or median rental amount in a neighborhood, data aggregators don't take into account things such as the aesthetics, cleanliness, etc. of a unit.
Note that this content is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice.
