If you’ve thought about becoming a property investor, you may have had concerns about startup costs. Maybe you worried over how long it would take to have renters pay the bills for an otherwise empty house.
House hacking can give you an easier entry point into property investment and a place to live. While not a new concept, house hacking has quickly become a big topic in Chicagoland, even in the current seller’s market. Here, we offer a crash course - house hacking 101 if you will - on how to get started.
What is House Hacking?
An investor buys a home, lives in one portion as a primary residence and rents space out to others. This is kind of like a life hack on steroids. In a large single-family house, the owner might just rent out rooms or storage space. In a multi-unit structure, they may live in one section of a two-flat (or three-flat or four-flat) and rent out the others.
The rent from tenants helps to cover the mortgage and other owner expenses. Ideally, the investor then has additional cash left over after paying those basic expenses. Owners can use this profit for personal expenses, to pay the mortgage faster, or put towards purchasing another rental property.
Benefits of House Hacking
When done right, house hacking offers some amazing benefits over other more traditional avenues into property investment. We list just a few below:
- A cheaper place to live: House hackers benefit from having others help pay for their housing costs like mortgages, maintenance, taxes, insurance, etc.
- Landlord training wheels: When your tenants live next door, you quickly learn the skills needed to be a good landlord. You also figure out if you want to continue as a landlord or use a property manager.
- Short-term renting options: Renting out space via VRBO or AirBnB is a heck of a lot easier if you live nearby to oversee guest satisfaction and rule compliance.
- Tax and financing perks: Enjoy mortgage interest tax deductions and lower taxable income through depreciation. You also receive more favorable mortgage terms as an owner-occupier unlike investor only mortgage options.
- Build your wealth portfolio: Rent that helps cover the mortgage helps you prepare for your next investment property while keeping your personal living expenses low.
What Should I Consider Before Hacking a House?
Simply put, before jumping into house hacking, know the numbers. Know your creditworthiness and available capital for a down payment. Determine which neighborhoods are seeing upward trends in desirability and rent rates. Know potential for income from rent vs. cost of house. And think about how many hours of sweat equity you’re able to put into fixing up.
Treat a house hack purchase as an investment property, not just a personal home. That means working with an expert in investment property to ensure there is a market for your rental units. You’ll also need to know applicable City of Chicago residential landlord and tenant ordinances. Some areas may not allow or limit house hacking.
Ready to get started on your house hacking adventure? GC Realty, Chicago’s Responsible Property Manager™ Company has helped many new investors house-hack their way to more passive income. Check out our House Hacking Calculator or contact us today to learn more.
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