"House hacking" might be an unfamiliar phrase to those outside the world of real estate. For newbie investors and first-time homeowners, this prospect is becoming rather "trendy." House hacking is the concept of purchasing a multifamily property such
as a triplex, for example, and electing to live in part of the property while renting out the remaining units. This concept can be appealing for consumers looking for ways to creatively finance a property
purchase. Good tenants can help to drastically reduce monthly
mortgage payments, allowing the owner to live on the premises at a low cost or possibly for free. These properties are duplicitous in nature as they afford the owner a primary residence/dwelling place while earning rental income. All in all, it isn't
a terrible idea... under the right circumstances.
As with any situation in life, there are two sides to every story. The same is true with the house hacking trend.
The Aitken Home Team
five reasons why house hacking can fail you:
If you are just getting starting and attempting to purchase a home in which you will actually live, house hacking isn't a bad gig. If you are looking for a creative means of investment, you should be aware that most lenders
would rather not lend to an owner-occupied investment property. In other words, if you are going to purchase a multi-unit investment property with the intent to reside in it, you need to move on quickly to other investment options.
Related: "5 Tips for Selecting a Lender"
There are many successful investors who still elect to rent out their homes. Here's why: home ownership can be expensive. Collecting rent is a way to pay bills, have a little more freedom financially or travel. If you fit
into the aforementioned categories, you will only be weighed down rather than liberated by house hacking. You are ultimately responsible for the property and the finances and will not be as free to go about life as you would be if you invested in
a smaller multifamily property, while living off the premises.
Unfortunately, the numbers don't often add up with house hacking. You would have to live for free or very close to it. If you can find a multifamily property for the same price as a single family home and collect rent in excess
of the monthly mortgage payment, you've achieved every investor's dream. Reality stipulates that you will likely be unable to achieve this, leaving you responsible to pay the remainder due. You will wind up paying more for the property while
quickly draining your bank account.
Emotions Run High
When you live in your investment property, your emotions do, too. Investing succeeds when treated as a business. It is tough to remain objective when you live with your tenants and poor decisions are easily made as a
result of emotional stress.
It's always risky when a landlord becomes personally involved with his or her tenants. Liability is assumed when appropriate measures to protect your privacy and identity are not taken. Sometimes, it might even be best not
to share your phone number. In addition, balancing landlord responsibility can be tough. You don't want to be too lenient nor overbearing. Decide whether or not you'd like to deal with middle of the night knocks on your front door, late
evening phone calls and daily maintenance complaints. Furthermore, living with tenants makes it too easy for them to "demonstrate" their displeasure with you or the property. Safety first!