Househacking can drastically increase how much money you are able to save, invest or use towards your debt reduction strategy. The sooner you can start househacking the sooner you can reap the benefits from compound interest.
Regardless of when you start, househacking can be a life changing decision. Just about everyone has the ability to househack in one form or another.
What Is Househacking?
There are a few different ways to househack, which is what makes it accessible to so many different people.
Typically, househacking is referred to as purchasing a multi-family home, between two and four units, living in one unit and renting the remaining units. Ideally, you will cash flow positive by doing this, if not you will cover a large percentage of your living expenses.
I househacked in this exact way. I bought a two unit multi-family home, lived in one unit and rented out the other unit. After one year, my average monthly cost to own the house was just $257.97. My tenant paid me rent of $650.00 per month for the first year.
If I had bought a single family home for the same price my average monthly cost to own would be $907.97.
My average monthly cost of $257.97 + rent of $650 = $907.97
This leaves me with an additional $650 (cost of rent) in my pocket each month. If this $650 was invested for the life of the mortgage (30 years) and earned an average 7% return it would grow to $788,369.72. This doesn’t factor in vacancies, repairs, rent increases, taxes, etc that would lower this number some.
By making this one decision I have the opportunity to save an extra $788,369.72 over the course of the next 30 years vs. someone who bought a comparably priced single family home. That’s remarkable.
Best Case Scenario
In an even better scenario, you could purchase a four unit multi-family home and have three units providing you with income. This option makes attaining a positive cash flow each month very likely.
Even if the total expenses for owning that property were 50% higher than in my two unit scenario ($907.97 x 1.5 = $1,361.96) It’s still very possible to be cash flow positive.
If you were able to rent the remaining three units for just $600 per month you would net $438.04.
Rent received $1,800 – total expenses $1,361.96 = $438.04 cash flow.
Instead of having to pay $1,361.96 like you would if you had purchased a single family home for the same price, you have a positive cash flow of $438.04.
If the $1,800 difference per month that was received in rent was invested for the life of the loan (30 years) and earned an average 7% return it would grow to $2,183,177.69. You could have over $2 million more than someone who decided to purchase a single family home!
Of course, there will still be small and large expenses, repairs and vacancies, as well as rent increases over time. These are broad numbers but they illustrate the point very well. There’s a huge financial advantage to buying a mutli-family house and renting part of it out.
Alternative Methods
Another popular way to househack is to simply rent out rooms in your home. You may have already bought a house and want to participate in househacking. This can easily be achieved by renting out extra rooms in your house. This can drastically reduce your living expenses and you could just as easily calculate how much this could earn/save you over a 30 year period. Any additional income received from rent can be plugged into a compound interest calculator to figure out exactly how much.
Househacking could potentially be done if you are renting as well. This will depend on your lease and what your landlord allows, but it could be worth a look. You may be able to househack in some less conventional ways as well. This may include renting garage space, driveway space, etc.
Househacking was the most impactful financial decision that I’ve ever made. The financial gain has been great, but I have also learned countless things that I probably wouldn’t have learned otherwise. I’ve learned things about home ownership, business, landlording, managing relationships and much more. Househacking provided me with the “boots on the ground” experience that allowed me the necessary confidence to continue investing in real estate.
Do you househack or will you in the future?
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