4 Benefits of House Hacking as a First-Time Homebuyer

House hacking is a real estate investing strategy that requires becoming a landlord and renting out sections of your primary abode to generate income, allowing you to offset mortgages and other expenses. Duplexes, triplexes, and multi-unit dwellings are common house hacking properties. Once a property has a proven house hacking track record, it also becomes more sellable to other investors. As a homebuyer, you can earn income from the investment today and also generate a profit from the sale of your property later on. This resource provides helpful tips on how to sell a house fast https://sdhouseguys.com/. The more rental income that your property shows that it can generate, the more easily you can sell your house in the future.

Here are five reasons why house hacking is a great strategy for first-time homebuyers.

1. Mortgage Savings

Perhaps one of the main advantages of house hacking is the ability to use specific loans to finance multi-family abodes for relatively low deposits. Using an FHA loan is an excellent way to get started. 

Buying a duplex as an investment property would necessitate paying a 20% to 25% down payment for the mortgage, with a potentially high interest rate. However, purchasing it to house hack with FHA financing only requires a 3.5% deposit. Thus, you'd need just $10,500 (instead of $75,000) to purchase a $300,000 duplex. After closing, you can rent out one side, letting you live cheaply on the other.

As you continue through your real estate investing journey, you may eventually be able to leverage cash to buy houses. A popular strategy for investing money and then pulling it back out is the BRRRR Strategy. Buyers will purchase a home to renovate, rent out, refinance, and repeat the process. If you plan to use cash to house hack, you can implement the BRRRR Strategy, which enables you to pull some (or all) of your money back out in preparation for the next investment opportunity. Here is a list of house hacking professionals and companies that buy houses for cash https://webuyhousesindenver.org/companies-that-buy-houses-for-cash/. Consider networking with other real estate companies that are doing what you want to do, which can help you learn and master these investing strategies.

2. Tax Deductions

House hacking lets you access homeowner tax, like the homestead tax exemption, and landlord tax benefits. Rental property owners might be able to deduct relevant expenses from their taxes. Renovating parts of your house and running a rental business is tax deductible. Therefore, you could get a bigger return when tax season comes knocking. Offsetting your taxes is a key advantage to working within the real estate investing industry. Consult with your tax professional on optimal strategies that you can use based on your current real estate portfolio.

3. Landlord Learning Experience

House hacking gives first-timers valuable experience as a landlord with a comparatively low level of risk, since you are offsetting most of the housing expenses with rental income. Here are several pieces of experience worth gaining during your first house hacking venture:

• Advertising the unit
• Screening and managing tenants
• Getting to grips with rental agreements and contracts
• Dealing with unexpected repairs or problems
• Negotiating with contractors
• Managing the Profit and Loss Statement of the property

4. Positive Cash Flow

When you do house hacking correctly, you earn extra income after you've paid your monthly expenses.

Technically, you can use this money for whatever you like! However, savvy investors tend to do one of two things — invest in additional properties or pay down their mortgage. Depending on your situation, the former might be your best move.

Earning positive cash flow each month can be a game-changer for your personal financial situation. This can enable you to now afford certain things that otherwise may have been a stretch. Even if you don’t fully break even from the rental income through your house hack, it still greatly diminishes the total housing expenses you have to pay out of pocket. You should still consider it a win if the rental income covers most of your monthly mortgage cost.

The Bottom Line

House hacking is a great opportunity for you, a first-time homebuyer. It provides extra income that you can use for personal use or future real estate investments. House hacking has risen in popularity because of the dramatic increase in housing prices over the past decade. For many homebuyers, it’s the only possible way that they can afford to purchase a house financially. House hacking not only benefits you now through rental income but also helps add value to your home when you attempt to sell it.