Last week, I sold a duplex to a young guy and it reminded me how smart it is to "House Hack" when you are getting started. For those not familiar with the term, house hacking is where you buy a multifamily property (2-4 units) and live in one of the units. This has been a great strategy forever but it was recently given the name "house hacking" on the real estate investor website BiggerPockets.
What are the advantages to doing this?
1) You can reduce or eliminate your housing expenses. Yes, it will require some work to manage your tenants and take care of the property, but it can definitely be worth the time.
2) As an "owner-occupant" you typically qualify for a lot better financing than an investor that won't be living there. Investors are usually required to put down 20-25%, pay higher variable interest rates with shorter amortization periods. Since this will be your primary residence, you can usually qualify much lower down payment, fixed interest rate and 30 year amortization.
3) Property taxes, at least in my area, will be lower for an owner occupant. Investors do not get to claim homestead exemptions.
4) There are a host of tax benefits related to depreciation and other write-off's. Talk to your accountant to learn more about these and make sure they are applicable to your situation.
5) You gain valuable experience being a landlord on a small scale. This can help you later on if you decide to invest in more properties.
6) Later, when you decide to move, you can rent out your unit and use the cash flow to fund your next property.
Whether your goal is to become a real estate investor or just reduce your housing expenses, house hacking is a great way to get started. Yes, there is work involved but the rewards can be great. I look back and wish I had started out as a hacker!
If you are interested in learning more, please contact me. Happy to help!