David Sidoni explains house hacking: buy a multi-unit property or single-family home, live in part of it, rent out the rest. You get residential financing with lower down payments, cut your housing costs, claim tax deductions, and start building equity while learning to invest.
Chapters
Expand on house hacking. This would be great information for our folks. House hacking is a owner occupied investing strategy, which is exactly what it says. It's basically a property that is both your primary residence and an investment property. And there's essentially two different avenues that you can take to house. The first is to buy a multi unit property and typically that that would be still a residential property, which is defined as four units or fewer. So you buy a duplex, you buy a triplex, you buy a quadplex, you live in one unit and you rent out the others. That's one avenue. Personally how one of the ways I got started as a real estate investor and then there's also a more, I guess it's like, tends to skew for the younger audience. But people buy a single family home and live in one bedroom and find roommates. And that's a totally good approach too. So both of those are ways to become an investor and lower your cost of living. And the reason it's so beneficial is I guess there are a couple of reasons. The first is that you get access to residential financing. Normally if you're just buying a rental property that you don't live in, you typically have to put 25% down. Your interest rate is going to be a little bit higher. If you buy a primary residence, you can qualify for an FHA loan which usually has a half point lower interest rate. You can put sometimes as low as 3.5% down. There are 2013 loans. If you're a veteran, you can do this, you know, and use a VA loan. There's just much more flexibility on the loan side, which is just super beneficial. The second thing is that as an investor, like when I go out these days, at this point in my career, when I go and buy a rental property, it has to cash flow. I need it to generate a certain amount of cash every month to make it worth the risk and my time. But as a house hack, all you needed to do is to reduce your cost of living to make it an effective financial decision. So even if you are still paying $500 a month, let's say for your mortgage, that's probably less than what you're rent was, especially if you're in a high cost of living area. Plus, in addition to that savings, you get the tax benefits of homeownership, which are very significant. And you also get the potential for appreciation. You could do renovations and increase the value of your home. And so you're sort of getting all of this, all the benefits of an investment and a primary residence in one. And then the last thing I'll say is, I understand your audience here, David, is mostly people who are getting their first home. But if you buy your first home and you get the bug and you like it, it's a great training ground for real estate investing. You learn a lot. And if you want to go on to buy, you know, buy two or three rentals over the course of your life, you'll be very confident in your ability to do that. So there are more, but I, I think those three are just super compelling reasons why people, especially in high cost of living areas, should consider house hack.
