Investing in real estate has remained one of the best ways to create financial freedom and build generational wealth, but it can seem unattainable for those of us without a large amount of cash to start with. If you are interested in getting into real estate investing, but do not know where to start, consider how house hacking might be the right first step.
If you’d like to talk with a pro about what your options are, how to prepare for mortgage pre-approval, or how much you are likely to be approved to borrow, talk with one of our loan officers. We would love to be a part of the team that helps you reach your real estate goals.
One of the ways many real estate investors get started with their goals is through house hacking. Here’s what you need to know to leverage this strategy for your own success.
What is house hacking?
House hacking is a term coined in recent years to describe a creative way to get into real estate investing at the same time you are buying your personal home. It involves purchasing a home for yourself, often as a first time home buyer through a program that allows you to make a much smaller down payment, and then using that personal home as an income property. The income from the rental property can then be leveraged for your next real estate purchase, and the process repeats.
Should I house hack with a single family home or a multi family home?
There are basically two ways to house hack.
The first is with a single family home. You buy the home and move into it as your personal residence, with a plan to live there temporarily (usually about two years). During the time you are living there, you might renovate or upgrade the home with increased property value in mind. While renovating, you will also be considering how you can create a home that will draw the highest monthly rent, possibly by turning a half bathroom into a full bathroom, upgrading old carpet to durable hard flooring, or updating the kitchen.
Then, when enough time has passed, you will refinance and list this home for rent. The equity you can pull out from refinancing becomes the down payment for another property, and the rent you get from your tenants will cover the mortgage on the first home. You now own two properties, one that is paying for itself and another that was purchased with a down payment covered by equity from your first.
This process can be repeated if you would like to. The second home can be renovated to increase property value, or you can just wait for equity to build naturally through real estate market growth. Then, when the time is right, you will refinance and use that equity to fund another investment. Over time, this strategy can build quite a real estate portfolio of rental properties that can provide financial freedom and generational wealth.
Another similar way to do this is with a duplex or other multi-family property. Often for a similar investment as a single family home, you can buy a property with more than one unit. You will live in one unit, and then rent the other(s) out. The process is very similar to house hacking with a single family home, but you get started as a landlord sooner. In many cases, you can rent out the other unit(s) for enough to cover most or all of your monthly mortgage payment.
How much do I need to get started with house hacking?
House hacking is one of your best real estate options if you have minimal cash to get started in investing. If you can qualify for a FHA or conventional mortgage, you can get started for as little at 3% down. To find out exactly what you can qualify for and how soon you might be able to start your real estate investing venture, contact us any time.
