What if you could live for free? Although it may sound like a dream that is too good to be true, it can be made possible through house hacking. Let’s take a closer look at this powerful lifestyle choice that could transform your financial future.
What is house hacking?
House hacking is a strategy in which you intentionally lower your housing costs. Essentially, you rent out the extra space in your home to offset the mortgage costs. The goal is to live for free by charging your tenants enough to cover the entire mortgage. You can house hack in a variety of ways. Whether you choose a single-family home or a multi-family property, the goal of renting out the extra space remains the same.
Without the burden of monthly housing costs, you can work towards other financial goals more easily. House hacking opens the door to paying down debt more quickly, saving for retirement more diligently, and breaking the paycheck to paycheck cycle completely.
Is it really possible to live for free?
The short answer is yes. It is absolutely possible to live for free with the help of house hacking. Although it will require some creativity, it can be worth the reward. With house hacking, you might rent out an extra room or a separate unit. But the goal of renting out your space is to cover the entire mortgage costs.
Depending on your house hacking opportunities, you could potentially live for free in your own home. You may even be able to bring in more in rental revenue than your mortgage costs and get paid to live in your home. But even if you can only offset a portion of your mortgage, house hacking is still a viable strategy. The money you are able to save with any level of house hacking can still make a big impact on your life.
How does house hacking work?
When you are considering house hacking, the basics will remain the same. The ultimate goal is to offset your mortgage costs with rental income from tenants. With that, a successful house hacking strategy is one that finds tenants for the extra space on the property. You might be able to rent out a spare bedroom or a completely separate unit to generate a rental income. You can use the rental income to cover your mortgage. Once you have a taste of living for free, it can be difficult to see living any other way!
House hacking examples
Although the basics will remain the same, the details of your house hack will vary widely based on the property. Let’s take a closer look at some of the options.
Renting out rooms in a single-family home
You could pursue this lifestyle strategy to lower your living expenses by renting out rooms in a single-family home. With this style, you would likely need to share common areas with your tenants such as the kitchen or bathrooms.
Renting out units in a multi-family home
Another option is to rent out units in a small multi-family property. In most cases, you’ll be able to obtain a four-unit property with conventional owner-occupant financing. That would allow you to rent to tenants without sharing any common space.
Is house hacking worth it?
House hacking is a great opportunity to lower your living expenses while building equity in a property. In this strategy, you would likely assume the role of landlord for your tenants which comes with a certain amount of work.
You could save thousands of dollars each year by cutting out your housing expenses. According to the Bureau of Labor Statistics, the average American household spends over $10,000 per year on housing costs. Of course, the amount you are able to save by eliminating your housing costs will vary based on your area. For example, the average rent in San Francisco is over $3,600. When compared to the average rent of $1,435 in Orlando, you could save more through this strategy if you are living in a high-cost area.
In the end, the decision to pursue this opportunity will come down to your goals. If you are comfortably meeting your savings goals, then it might not be worth it to house hack. But if you are looking for ways to optimize your expenses, then house hacking should not be ignored.
How to create a house hacking plan
If you are interested in living for free with this strategy, then take a few minutes to create a plan. Here are some key tips you can leverage.
1. Assess your current situation
Everyone has to start this journey from somewhere. You can get started as a house hacker by renting out a spare bedroom in your current home. If you don’t already own a house, you can seek out a property that would satisfy your needs with extra room to rent out.
Beyond the property itself, you should consider the dynamics of your personal life. What are you comfortable with in terms of sharing space with tenants? Are you okay with a roommate situation? Or would your family need a separate space to feel at home in? Take some time to consider your comfort level before diving in.
2. Make adjustments
You may be able to start renting out rooms tomorrow. But in most cases, you’ll need to make some adjustments before bringing in tenants. You may need to clean out the spare room or undergo a minor renovation to create a more divided space.
If you are looking to purchase a property, then check out your owner-occupant financing options. As you look for a property, keep your common area preferences in mind. Also, consider the rental income opportunities of a given property. Seek out opportunities that would allow you to live for free and avoid any properties that don’t meet your rental income expectations.
As you start the process, it is important to stay flexible. You should expect to run into some unexpected issues along the way. That’s okay! Things may not always go according to plan, but you can still successfully house hack with a flexible attitude.
3. Consider your rental strategy
Before you bring in tenants, consider the rental strategy you want to pursue. You could rent out your space to long or short-term tenants. You would typically sign a lease agreement for the tenant with long-term tenants for at least a year. As the landlord, you would collect rent and ensure the property is maintained throughout the lease.
When tenants move out, you may have to do some minor updates such as new paint. But overall, your workload of maintaining the property is relatively low.
With short-term tenants, you can offer short stay through sites like Airbnb or VRBO. In these vacation rental-style opportunities, you can usually earn more per night for your unit. However, there is often more work involved. For example, you may need to clean up the unit, change the sheets, stock the fridge, and more between renters.
Additionally, you would likely experience a higher vacancy rate. With that, short-term rentals usually come with an opportunity for higher profit but are associated with more work and more risk.
Consider the rental numbers in your area and the workload involved before moving forward.
4. Find tenants
Once you have the property and a rental strategy, it is time to find tenants. For short-term rentals, Airbnb and VRBO are great options. If you are looking for a long-term tenant, then you’ll need to consider other options. Word of mouth within your network is a great place to start. But you can also create listings on Facebook Marketplace, Zillow, and Craigslist to find more potential tenants.
When deciding on a long-term tenant, you’ll need to do more due diligence on their background. You may want to check their credit score and confirm that they can afford the rent with an income statement. After you’ve found a great tenant, have them sign a lease that outlines the rules of your property.
5. Enjoy living for free
After the hard work of finding the right tenants, it is time to enjoy the fact that you are living for free! Set up a plan for this new income to help you meet your financial goals!
The bottom line
House hacking is an excellent opportunity to lower your expenses and build equity in a property. Although it can require some effort, the reward of living for free is worth the sacrifice. Take advantage of this unique strategy to lower your expenses while creating a financial future that you love.