House hacking is when an owner lives in their property and rents out other parts of the property. Ultimately, the tenants are the ones paying the monthly mortgage payment while the owner lives rent-free.
For example, a person can buy multi-family property (e.g., triplex), live in one of the units, and rent out the other units. Another example is a person who owns a single-family home, lives in one of the rooms, and rents out the other rooms.
My simple housing market hack was owning a single-family house and having roommates pay rent. I didn’t do this to start building wealth. Instead, I invited my friends to live with me, primarily for social reasons.
The first big benefit of house hacking is living rent-free! A mortgage payment is composed of the principal amount, interest payment, and potentially mortgage insurance. However, the tenants are the ones paying back the debt service.
Lenders offer lower interest rates to people who will occupy their property compared to investors who do not.Lenders offer low-interest rates to people living on their property because they tend to take better care of where they live. Thus, they are less risky.
The most powerful thing in real estate is leveraging other people’s money. Therefore, for a lender to approve you for real estate financing, you need to be as creditworthy as much as you can.
I always recommend new investors to build a relationship with a local bank or a credit union. A banker at a local bank can sometimes have more influence over your loan than a banker at a “big name” bank.