House hacking is an ideal way for beginners to get started in real estate, especially when
purchasing a multifamily property. By purchasing a duplex, triplex, or fourplex and living in one
unit while renting out the others, you can significantly offset or even cover your housing costs.
Here’s a guide to house hacking and the process of purchasing your first multifamily property.
1. What Is House Hacking?
House hacking involves purchasing a property, typically a multifamily building with two to four
units, and living in one of the units while renting out the others. This strategy helps you build
equity, generate rental income, and live with minimal (or zero) housing costs, while also gaining
experience as a landlord.
2. Why Choose a Multifamily Property?
Multifamily properties are an accessible entry point into real estate investing, especially for
those who want to ease into managing tenants. Here’s why:
– Income Generation: Rent payments from tenants in other units can offset your mortgage and
maintenance costs.
– Lower Risk: With multiple units, the vacancy of one unit is less impactful on your income
compared to a single-family rental.
– Loan Flexibility: Purchasing a two-to-four-unit property can often be done with a standard
residential loan (such as FHA or VA loans), which usually has lower interest rates and down
payment requirements than commercial loans.
3. Finding the Right Property
Locating the perfect multifamily property is key to successful house hacking. Here’s what to
consider:
– Location: Look for areas with strong rental demand, which can often be close to universities,
business hubs, or major public transportation routes.
– Property Condition: Decide whether you’re looking for a turnkey property that’s move-in ready
or a fixer-upper with potential for appreciation through improvements.
– Rental Market Research: Evaluate current rents in the area to estimate your potential rental
income. Local real estate websites and rental platforms can provide data on average rents.
– Cash Flow Potential: Once you know the area’s rental prices, calculate your expected cash
flow by subtracting your mortgage, taxes, insurance, and estimated maintenance costs from
potential rental income.
Our team of experienced agents specialize in multifamily housing and can run the numbers to
ensure you find a great deal on your next multifamily home.
4. Financing Your Multifamily Purchase
To make house hacking work, securing the right financing is essential. Here’s how to approach
it:
– FHA Loans: With as little as 3.5% down, an FHA loan can be an attractive option for house
hackers. The catch is that you must live in one of the units as your primary residence for at least
one year.
– VA Loans: If you’re a veteran, you may qualify for a VA loan, which allows for zero down
payment on multifamily properties with up to four units, provided you live in one.
– Conventional Loans: A conventional loan typically requires a larger down payment but may
have fewer restrictions on how long you’re required to live in the property.
Mortgage brokers and lenders experienced with multifamily purchases can guide you toward the
best financing options for your specific situation.
5. Closing on Your Property
The process of closing on a multifamily property is similar to that of a single-family home, with a
few added considerations:
– Property Inspection: Multifamily properties can have different wear and tear patterns than
single-family homes. Ensure a thorough inspection to identify any needed repairs or
renovations.
– Negotiation: Don’t hesitate to negotiate with the seller for repairs, especially if major issues are
found during the inspection.
– Leases and Existing Tenants: If the property comes with existing tenants, review their leases
carefully to understand terms, rental income, and responsibilities.
6. Preparing for Move-In and Tenant Occupancy
Once you’ve closed on your multifamily property, there are some additional steps to prepare for
both your move-in and tenant occupancy.
– Set Up Your Unit: Design and personalize your unit as you would with any other home. House
hacking doesn’t mean compromising your living quality.
– Prepare the Rental Units: If any units require repairs or upgrades to meet local codes or tenant
expectations, prioritize completing these tasks before renting them out.
– Tenant Screening: Carefully screen potential tenants by reviewing credit scores, rental
histories, and income verification to ensure a reliable rental income.
7. Managing the Property
House hacking offers a unique setup: you’re both a resident and a landlord. Here’s how to make
it work smoothly:
– Set Boundaries: Establish clear landlord-tenant boundaries and maintain a professional
relationship with your tenants.
– Routine Maintenance: Stay on top of maintenance requests, especially if you’re managing the
property yourself. Taking care of repairs promptly keeps tenants satisfied and protects your
investment.
– Rent Collection: Consider using online rent collection tools for a seamless process. Many
online property management tools allow you to collect rent, track expenses, and manage tenant
information all in one place.
– Hire a property manager: Tenants knowing you own the property can sometimes lead to
disdain and can cause you a lot more trouble than it’s worth. By hiring a property manager you
can alleviate direct contact with your tenants. You can go from being your tenant’s landlord to
being their friendly neighbor. Let us handle the messy parts of property management while you
reap the benefits.
8. Building Wealth Through House Hacking
House hacking is a wealth-building strategy that enables you to save money, build equity, and
potentially generate a cash flow. Over time, your property value may increase, allowing you to
leverage it to purchase additional investments.
Why Choose House Hacking?
House hacking is a practical and rewarding approach to real estate investment, offering the
opportunity to learn about property management while living in your investment. Whether you’re
looking to reduce your housing costs, build equity, or begin a path toward financial
independence, house hacking a multifamily property is an excellent way to start. We’re here to
help you locate your dream property, close on it, and manage it for you; helping you build wealth
one property at a time.