Buying your first home continues to become harder each year. The recent rapid appreciation in home values from 2019-2022, followed by a rapid increase in mortgage rates from earlier this year to now has made it tough to pull the trigger on that house even if you are approved financially to make the purchase.
If you feel that added mortgage is going to stretch you a little thin on your monthly income statement (a.k.a. budget), maybe you should consider house hacking.
What is house hacking? The simplest way to define it is finding a way to generate income from the home you live in. When I bought my first house, I did this by renting out the 2 additional rooms I wasn’t using. Another way to house hack is by buying a multi-unit property and living in one unit and renting out the rest. This can be tough to make happen because the rent won’t always cover all of the costs of owning that additional unit(s). Multi-unit properties can be duplexes or triplexes that were single family homes converted into multiple units under the one roof. Most people assume duplexes are side by side but there are variations to multi-units.
Renting out the additional bedrooms was a great source of additional income to handle unexpected repairs like when my AC went out in the first summer of ownership. It also made it possible to get higher quality internet service and streaming services I wouldn’t have purchased otherwise.
Now, you won’t be able to use this income to get pre-approved for your loan, but it’s a great bonus to provide a little savings rate, which is so important to get established earlier in your adult life. Obviously, it’s never too late to start that.
House hacking does come with its challenges such as giving up some of your space to others, an increase in utility usage, and property management type responsibilities. You can mitigate these challenges by choosing a home that better suits multiple adults living in the same house.
Having an adequate number of bathrooms would be a top priority for me. If you have a 3BR home with three adults living in that house, you need to have a minimum of two bathrooms and ideally a third one, if possible.
The second thing I would look for is two separate living areas. This could be one on the main floor and another in the basement, but it’s essential to have these two spaces so you aren’t fighting over the TV or gathering areas.
Another type of house hacking is building an ADU (Accessory Dwelling Unit), which is an additional, smaller property on a lot with an existing property. These are becoming more popular throughout the country due to the price of homes and the need for more density. You may even have an existing structure that can be turned into housing like a garage or a barn. If you need ideas, watch the classic movie Road House.
Before you make any big decisions on ADUs, you need to check with your local zoning laws and HOA rules. You will also want to learn your state and federal landlord tenant laws with any renting solution you come up with.
I won’t get into the details of the other challenges around landlord tenant laws, but the benefits of homeownership far exceed these challenges you will have. Home appreciation and getting help paying down debt are the two biggest ones.
We are experiencing a slowdown in the housing market and numerous price reductions. The added days on market that comes with this makes it much easier on first time homebuyers by allowing them time to make a good decision for themselves. First-time homebuyers looking for a house one year ago had 15 minutes to determine if they wanted to write an offer $20,000-30,000 over the asking price. It was very challenging for these buyers and many dropped out of the market from being frustrated with that environment.
There are many things to consider when purchasing your first home. House hacking may be the way for you to make that dream a reality.
If you are curious on what all goes into purchasing a home, you can download my First Time Homebuyer Guide here.