What’s your biggest bill every month? If you’re like most people, it’s your housing payment. Either a mortgage or rent payment goes out on the first of every month. Wouldn’t it be great if that bill was covered by someone else?
That’s what house hacking is. I’d define house hacking as “strategically using your primary residence as an investment.” I think it’s a collection of strategies, that can be used in any combination to grow your wealth, and minimize your monthly expense.
Birmingham is a unique place to try this. It’s very different than some other national markets. There is limited inventory of small multifamily buildings. There are usually only about 40 listed on our MLS. Most of them are in less desirable areas. For those that want to house hack, you might have to be more creative.
Here’s my list of strategies
I’m sure there are more out there. If you’ve got any to add please let me know. Real estate can be scary, and some of these might not work for your situation. But I believe there’s a way for everyone to use their housing as an investment if they want to.
Buy a multifamily building
Buying a 2 to 4 unit multifamily building is such a great move financially. It’s very possible for rental income to completely cover your mortgage payment. It’s easy to save money when you don’t have a monthly housing payment to make! One smart move could snowball into lots of other great investments and wealth building activities. I just helped a client to close on a beautiful quadplex in Irondale. She’ll live in one unit, and more than cover the mortgage payment with the income from the others. She put very little down, and got to keep her old house as a rental. This was an absolute slam dunk for her investing career! I’m very excited for her, if you can’t tell!
Rent a room to roommates
It can be hard to find multifamily buildings in good areas of Birmingham. One alternative is that you could just buy a house, and rent rooms to roommates. Financially, you’d still get all the benefits. My wife was doing this when I met her. Financial responsibility is hot! She bought a house in a really nice area, and put almost nothing down. She found a great roommate through asking her Facebook friends. When we got married, I became her new roommate. When we moved out, this house became our first rental. Her equity in this house has quadrupled.
Airbnb
I’ve heard some great strategies for Airbnb. Here’s two:
- Renting a room in your house out – Similar to above, but you rent it on a nightly basis instead of monthly. I’ve heard you can make even more this way. Plus, it’s a great opportunity to meet new and interesting people!
- Renting your whole house out and staying with a fellow Airbnb landlord when it’s rented. It’s like a landlord co-op. In exchange, they stay with you when their house is rented.
Live in Flip
This is what we’re doing right now. We renovated the house, moved in, then got a mortgage for 20k more than our costs. We’ll sell next year and probably do it again. It’s also possible to renovate while you live in the house if you want to. If you live in the house for two years there’s a possibility that your gains will be tax free. Many builders and developers will use this strategy over and over.
Never selling your houses
Maybe we won’t sell our house next year. A lot of landlords build their portfolio by never selling their primary residences. It’s a great strategy, because It’s not always easy to get financing for investment property. Owner-occupied financing is much easier to get. Once you have it in place, you can move out of the house, rent it out, and buy another. Also, a home that you’re willing to live in will likely be very attractive to top quality tenants.