For those of you that rent or have a primary residence, think about how much you spend in rent or on a mortgage payment every month. It’s a decent chunk of your monthly income, am I right? What if I told you there is a way to completely eliminate this expense and put that payment straight into your pocket every month. The way to do this is a concept called “house hacking”. It is the strategy I used to start off my real estate investment career in Beaver County and set the stage to really accelerate my wealth. It is one of my favorite strategies and I couldn’t recommend it more to young investors just starting out.
Most of you might think that to invest in real estate you need a ton of cash saved up to pay for a down payment and closing costs on a property. This is not the case. There is a special loan product called an FHA loan that is backed by the government and allows you to buy a property with only 3.5% down. Not only that, but they will let you ask the seller to pay up to 6% of the purchase price towards your closing costs. Even better, you can use this loan on a property of up to 4 units and still get a nice 30 year fixed rate mortgage.
The catch to this loan product is you must live in the property for at least a year in order to get it. That being said, the key is to buy a property with multiple units and live in one while you rent out the other/s. If you buy the deal right, this rent income from the other units will hopefully cover if not surpass what your monthly mortgage payment is. In other words, the tenants are paying your mortgage for you. How cool is that?! This completely eliminates your house payment and allows you to use that money to either make updates to the property or save it for a down payment on the next purchase. By completely eliminating your house payment you free up a ton of cash.
I house hacked a triplex in the Ambridge area to get started (Picture above is my triplex). I structured the deal with the owner paying 6% of my closing costs and was out of pocket less than $5,000 to buy the place. That’s the power of using an FHA loan. If I had to put 20-25% down it would have been awhile before I could have saved up that much. Also, the rent from the other two units was more than my mortgage payment so I actually had money left over to cover all of my utilities and put money in my pocket every month, assuming no repairs popped up. I have since moved out and rented all three units and the property is cash flowing great.
In addition, if you plan on investing in rentals and managing your own properties, house hacking is like training wheels for being a landlord. You are right there beside your tenants to keep an eye on them and don’t have to manage the property from afar. This gives you a taste of what it will be like managing a rental property and also gives you an opportunity to know your tenants better and if they will be good for the long term.
Now what if you aren’t a handyman or don’t want to have to deal with fixing up a property? FHA also offers what is called a “203k” loan. I won’t go into too much detail in this post but this loan lets you wrap renovation costs into the mortgage and still only pay 3.5% of the purchase price + renovation costs. I haven’t personally used this but I think it is an awesome product.
I truly believe house hacking can change your life and provide a runway for financial freedom. It completely changes your financial situation and frees up a ton of cash. If you have any interest in house hacking in Beaver County like I did to get started, feel free to reach out!! I would love to help you get started towards building wealth!