What Is House Hacking? A 101 Guide on the Latest Money-Saving Trend in Real Estate
There's no way around it: Buying a house is expensive. In fact, the average home in the U.S. costs just over $244,000, per Zillow's latest findings. That's why many people — first-time buyers, especially — are turning to "house hacking" to cut back on upfront costs. It's a real estate trend that's growing out of necessity, since many people find themselves living in cities where they are simply priced out of home buying. Read on to learn the ins and outs of house hacking, including if it's a smart option for you.
So, what is house hacking?
The phrase itself was coined by BiggerPockets podcast host Brandon Turner. He describes house hacking as the practice of "combining your investment property with your personal residence." Although you can technically do this with any single-family home, house hacking is typically done with small, multi-family properties like duplexes, triplexes, or any properties with divisible living spaces. That way the owners can live in one unit while renting the other units to tenants. House hacking, simply put, “is renting out a portion of your primary residence to generate income to offset the cost of the cost of the mortgage and other costs associated with the home,” says CPA Paul Miller.
Though house hacking may be uber-buzzy right now, the concept is hardly new in practice. "In earlier times, a simple example would be buying a mother-daughter house — you live upstairs and rent downstairs," Miller explains. The modern-day version achieves the same goal: It's an easy, low-stakes way to buy into a housing market you otherwise couldn’t afford.
How does house hacking let you live for free?
If done effectively, house hacking can actually let you live for free, making your investment well worth it. Think of it this way: After you buy a duplex or triplex, and put some money into fixing it up, you’ll also have a range of bills and everyday expenses to pay each month, including a mortgage, taxes, insurance, and utilities. But when you bring in tenants to offset monthly costs, your own portion of that bill may be close to zero — or possibly, cash-flow positive. At the same time, living in a hacked home helps you save money on built-in expenses — electricity, internet, and gas bills, especially — since there are more people to split the total cost.
The biggest money-saver? House hacking reduces your taxable income. In other words, owning a property gives you a mortgage interest deduction, saving you a significant amount each tax season.
Thinking bigger, this method allows to eventually move out (if that's your end goal, of course) and let another tenant live in your old unit. That way you can generate more money monthly and keep investing in bigger, better properties.
Is house hacking a good idea for first-time buyers?
Since first-time buyers typically have less money to spend upfront, Turner recommends house hacking as a solid, sensible place to start — as long as you have enough money set aside for the down payment. While "no down payments" mortgages aren't as common today, there are plenty of ways to purchases homes with low down payments, ranging from 3.5% down for FHA loans to 20% down for more conventional mortgages. If you're not sure where to start, talk with qualified mortgage professionals at your bank to ensure that you make the right decision for you.
Beyond that, house hacking teaches you the ins and outs of being a landlord. Because you live on site, you can quickly address tenants' concerns and keep your eyes on the property at all times. It also allows you to handle any maintenance or repairs as quickly as possible, preventing further damage.
What do you need to know before you try house hacking?
First, you need to make sure you're investing in a property that can easily be hacked — several rooms and entry points, desirable location, and feasible cost. "You have to know the rental market of the area you are looking to buy, the ability to re-rent," Miller explains.
Once you find a property that checks all the boxes, it's time to establish the rental fee for tenants. Turner suggests following the 50% rule of thumb:
And you need to be aware of the risks. “In case of a lost tenant, do you have the cash flow to carry the vacancy?” Miller says. With that being said, he urges looking into how short-term-rental rules, such as for Airbnbs, may or may not apply to your target situation and specific goals. You need to know: "Am I allowed to rent my space for less than 30 days?"
All in all, Miller recommends house hacking for a certain type of investor and personality. But go into it with eyes wide open. “Owning a house comes with a lot of baggage, repairs, and complaints,” he cautions. Because no matter how hard you try, you can't prevent the unexpected from happening.
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Alesandra Dubin Freelance Writer Alesandra is a veteran digital journalist based in Los Angeles, who has covered travel, food, events, fashion and beauty, entertainment, home, parenting, and viral content for more than 15 years.The Best Hack For Beating Stress In 2020, Based On Your Zodiac Sign
At the start of the new year, confidence is easy to muster. We're feeling inspired and motivated by our goals, and a sense of optimism is in the air for all of us to enjoy. But as we move farther into the year, and new complications and setbacks arise (as they always do), we'll have to confront them without losing our newfound positivity. Because each astrological sign confronts issues in different ways, and because the cosmos have placed different obstacles in the way of each sign, how each zodiac sign should beat stress in 2020 will differ.
Some signs have a natural disposition to face-off with their stressors, while other signs tend to ignore them until they hit a breaking point, or transfer them into other parts of their lives until there's a much bigger mess than necessary. The reality is that there's no stressor ahead that we can't work through, or around — but knowing what's ahead, and knowing the ways in which your sign can be fight it, can be extremely helpful and can actually reduce the impact of the stressor entirely. Below, astrologer Kyle Thomas shares what each sign has in store for them, and what plan of action is going to be most effective.
Aries (Mar. 21 – Apr. 19)
Your career will cause you a few unavoidable headaches this year, but it's nothing you can't work through. To keep your head above water, Thomas suggests you "set realistic goals for each month so you can see growth toward your overall plans gradually." Know that your progress might be slower than what you're typically accustomed to, but you'll hit your goals with patience. Making an actual list with pen and paper might help you to feel more connected to your goals — even the small ones — and you'll be motivated by the pleasure of crossing off tasks as you complete them.
Taurus (Apr. 20 – May 20)
While this will be a big growth year for you, Thomas warns that there may be challenges. "Education and working on your professional skills could feel like an uphill battle," Thomas says. A simple fix is to change up the way you learn and work to see if there's a method that's better suited for you during this time.
"Consider integrating new studying and researching techniques to not get down on yourself if you aren’t learning as rapidly as you’d hoped," Thomas says. If you're a visual learner, look up documentaries, movies or news show that have reported on the subject, and if you're an experiential learner, schedule in some field work to round out your education on your own time.
Gemini (May 21 – Jun. 20)
While you might be handling your professional stress quite well, it's your interpersonal relationships that are going to be problematic and potentially stressful for you during 2020. "Relationships could be a bit of a struggle this year, so rather than just dropping it when it’s tough, integrate new communication skills into your life to improve your connection rather than running away," Thomas says. So before you get discouraged by tension, try a different way of approaching the situation and see if that helps things run more smoothly — listen more, practice empathy, and find patience even when it's hard to muster. These hacks will help you maintain your relationships even if things get tough.
Cancer (Jun. 21 – Jul. 22)
Cancer is going to be standing up for themselves in 2020, which will be a massive learning curve. Because you're not used to sharing your feelings, there's a good chance you'll want to shut down, taking big steps back after so much progress. "It’s best not to shut off when your emotions get too intense. Consider journaling and reflection as crucial stress relief," Thomas suggests as a way to stay in touch with your feelings and keep them close to you to stay on the evolutionary path you're on.
Leo (Jul. 23 – Aug. 22)
This is an exciting year for Leo, since lots of different projects are going to get approved and you will be busy and professionally fulfilled. That said, Thomas predicts that this will cause a strain on your work/life balance. In order to avoid complications on both ends, Thomas suggests creating strong boundaries to ensure you're protecting and nurturing your personal life this year. Carving time out in your schedule to spend time with friends and family and take care of your home is crucial. You should honor that time just as you would time that you put aside for professional work.
Virgo (Aug. 23 – Sep. 22)
Virgo is going to have trouble this year being inspired. They might find that the writing they attempt feels flat, the craftiness they strive for is tired, and their lives are missing an artistic dimension that they crave. This will be stressful for Virgo, but it can be remedied by making a concerted effort to seek out that inspiration. "Take on reading, watching movies, or listening to music," to expose yourself to as much creativity as possible and get back in touch with that part of yourself.
Libra (Sep. 23 – Oct. 22)
"Getting your home in order could cause a lot of hard work this coming year," Thomas says, predicting that Libra will have home-related stresses ahead of them that threaten to distract them from other areas of their lives, too. This could be interpreted as pertaining to your physical home (repairs, finance, etc), or the people you share it with (family or roommate complications). "The way to beat this," Thomas says, "is to allow yourself enjoyable times outside of your space with friends. Set aside exciting events in your calendar that can get your mind off any troubles at home." The more effort you put into balancing your schedule, the less likely your home issues are to overshadow the rest of your life.
Scorpio (Oct. 23 – Nov. 21)
Scorpio is going to be frustrated by their inability to communicate their feelings effectively in the new year, especially with large groups of people and diverse opinions. For example, if you have a work presentation, it might not be received as you expect it to, your ability to connect with people is slightly limited as your perspective is slightly obscured by the cosmos. Thomas suggests "collaborating or working with someone to give you an outside perspective and push you to new levels." This new perspective might help you to bridge the gap between your opinion and that of the people you're working with.
Sagittarius (Nov. 22 – Dec. 21)
If you don't tighten your belt when it comes to your personal finances, your money situation is going to be very stressful in 2020. "Managing your finances could be hard work this year so you have to use your perseverance and practical side," Thomas says. "Brush up on saving and investment information or consult with someone who has experience in growing wealth." Download a free money managing app like Mint to help you get your finances organized and for expert advice on how to manage your spending and plan ahead to the future.
Capricorn (Dec. 22 – Jan. 19)
Caps are pushing themselves hard this year, which might lead to them feeling worn down. Because Caps are not likely to slow down, Thomas suggests at least prioritizing sleep, as since it's a way to beat stress without actually giving up time from your work day to relax. Once Caps sneak relaxation techniques into their lives, they'll be able to heal and regain the energy they've had trouble mustering.
Aquarius (Jan. 20 – Feb. 18)
While Aquarius isn't necessarily going to be dealing with current sources of stress, there will be a path for stresses of the past to come through and complicate the present. "Releasing traumas and anxieties will definitely be a big focus this year," Thomas says, suggesting that Aquarius includes meditation and therapy into their routine to work through it and ensure that this is a big growth year, psychologically.
Pisces (Feb. 19 – Mar. 20)
"A lot of people will be coming at you with ideas and invitations this year, so you could feel yourself drowning in everyone’s expectations," Thomas predicts. In order to ensure that you don't overextend yourself, you'll have to set boundaries with people and be economic with what projects and invitations you accept. Remember that it's OK to say "no", because taking on a ton of work or plans that you handle isn't doing anyone a favor. Quality over quantity, and transparency is always the best policy.
While each sign will be dealing with vastly different stressors, the best way to deal with all of them essentially lies in putting energy toward efficient communication. It's important to be open and honest with yourself and those around you about what you can handle, what you need help with, and how you're feeling. There's nothing that the cosmos are going to throw us that we can't deal with, so long as we face each stressor head-on, as they come.
You Could Live in Your House for Free If You Follow the Rules of "House Hacking"
© Getty Images First-time buyers, especially, are turning to house hacking to cut back on upfront costs and live in their preferred area. Here, we explain what house hacking is, how to live for free, and how to invest strategically.
There's no way around it: Buying a house is expensive. In fact, the average home in the U.S. costs just over $244,000, per Zillow's latest findings. That's why many people — first-time buyers, especially — are turning to "house hacking" to cut back on upfront costs. It's a real estate trend that's growing out of necessity, since many people find themselves living in cities where they are simply priced out of home buying. Read on to learn the ins and outs of house hacking, including if it's a smart option for you.
So, what is house hacking?
The phrase itself was coined by BiggerPockets podcast host Brandon Turner. He describes house hacking as the practice of "combining your investment property with your personal residence." Although you can technically do this with any single-family home, house hacking is typically done with small, multi-family properties like duplexes, triplexes, or any properties with divisible living spaces. That way the owners can live in one unit while renting the other units to tenants. House hacking, simply put, “is renting out a portion of your primary residence to generate income to offset the cost of the cost of the mortgage and other costs associated with the home,” says CPA Paul Miller.
Though house hacking may be uber-buzzy right now, the concept is hardly new in practice. "In earlier times, a simple example would be buying a mother-daughter house — you live upstairs and rent downstairs," Miller explains. The modern-day version achieves the same goal: It's an easy, low-stakes way to buy into a housing market you otherwise couldn’t afford.
How does house hacking let you live for free?
If done effectively, house hacking can actually let you live for free, making your investment well worth it. Think of it this way: After you buy a duplex or triplex, and put some money into fixing it up, you’ll also have a range of bills and everyday expenses to pay each month, including a mortgage, taxes, insurance, and utilities. But when you bring in tenants to offset monthly costs, your own portion of that bill may be close to zero — or possibly, cash-flow positive. At the same time, living in a hacked home helps you save money on built-in expenses — electricity, internet, and gas bills, especially — since there are more people to split the total cost.
The biggest money-saver? House hacking reduces your taxable income. In other words, owning a property gives you a mortgage interest deduction, saving you a significant amount each tax season.
Thinking bigger, this method allows to eventually move out (if that's your end goal, of course) and let another tenant live in your old unit. That way you can generate more money monthly and keep investing in bigger, better properties.
© Getty Images house hacking Is house hacking a good idea for first-time buyers?
Since first-time buyers typically have less money to spend upfront, Turner recommends house hacking as a solid, sensible place to start — as long as you have enough money set aside for the down payment. While "no down payments" mortgages aren't as common today, there are plenty of ways to purchases homes with low down payments, ranging from 3.5% down for FHA loans to 20% down for more conventional mortgages. If you're not sure where to start, talk with qualified mortgage professionals at your bank to ensure that you make the right decision for you.
Beyond that, house hacking teaches you the ins and outs of being a landlord. Because you live on site, you can quickly address tenants' concerns and keep your eyes on the property at all times. It also allows you to handle any maintenance or repairs as quickly as possible, preventing further damage.
What do you need to know before you try house hacking?
First, you need to make sure you're investing in a property that can easily be hacked — several rooms and entry points, desirable location, and feasible cost. "You have to know the rental market of the area you are looking to buy, the ability to re-rent," Miller explains.
Once you find a property that checks all the boxes, it's time to establish the rental fee for tenants. Turner suggests following the 50% rule of thumb:
And you need to be aware of the risks. “In case of a lost tenant, do you have the cash flow to carry the vacancy?” Miller says. With that being said, he urges looking into how short-term-rental rules, such as for Airbnbs, may or may not apply to your target situation and specific goals. You need to know: "Am I allowed to rent my space for less than 30 days?"
All in all, Miller recommends house hacking for a certain type of investor and personality. But go into it with eyes wide open. “Owning a house comes with a lot of baggage, repairs, and complaints,” he cautions. Because no matter how hard you try, you can't prevent the unexpected from happening.
For can't-miss news, expert beauty advice, genius home solutions, delicious recipes, and lots more, sign up for the Good Housekeeping newsletter.
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