House Hacking: Creatively building wealth

Buying a starter home is about purchasing your first home at a modest price point with the idea that, after years of hard work, career growth and expanding your family, you will purchase your “perfect forever home” that will suit your family’s long-term needs.

But in 2018, the challenge that today’s young people are facing is that many are not seeing their finances grow at the same pace as the cost of Real Estate. And since houses are viewed as an investment, millennials have gotten creative. This is where the term “house hacking” started.

What is house hacking you ask? It’s a mix between buying a personal residence and an investment property. In simple terms, house hacking is buying a multi-unit property, living in one unit and renting the other(s) for supplementary income.

There plenty of reasons that house hacking a game changer for this generation. Below are the major drivers for the youth of today.

House hacking can save you $$$

Mortgage payments can be expensive, so having a separate suite paying rent will help lower your monthly costs. This is obvious, but house hacking also allows you to buy a more expensive house while paying less per month. For example, if you purchase a starter home for $300,000 vs. a multi-unit home for $400,000, putting 5% down your mortgage payment on the 400K home would be about $500.00/month more. If you add a rental unit earning $1500.00/mo your mortgage payment would end up being $1000.00 less than your $300K mortgage payment.

This scenario, purchasing a home worth $100,000 more can potentially save you $1,000 per month in costs. In addition to monthly savings – the versatility of house hacking is a big reason for its popularity.

House hacking suits almost every lifestyle

Your twenties and thirties bring significant changes in your life. House hacking provides the flexibility needed to create a living experience that suits your life as you evolve. Here are some scenarios that can help you figure out how to structure your living situation:

– Do you want to save the most money possible? Live in the least desirable unit in your home.

– Do you want the nicer suite? Rent out the less desirable unit.

– Do you want the nicer suite and maximize the money saved? Rent your less desirable unit, and get a roommate for your unit.

– What if you’re only comfortable with exclusive access to the backyard and driveway parking? You’re the landlord and can specify the use of common spaces in your tenant’s lease.

– You’ve received a job offer out of town, what now? Rent your unit out, move, and use the cash flow towards your rent elsewhere while you figure out your next move.

– You love the neighbourhood and don’t want to move but your family has grown? Convert the multi-unit to a single-family residence and stay in the neighbourhood you’ve grown to love.

House hacking can be very versatile and can provide flexibility as your individual needs or your family’s needs evolve.

House hacking helps you get in your “forever home” faster

House hacking could be a stepping stone to help you buy your second home faster, while allowing you to hold on to your first. This works in a few different ways:

Increased personal savings: Since house hacking can decrease your monthly costs, you’ll be able to save more money faster to allocate towards your next purchase. Just make sure you are putting the extra money into savings each month.

Increased principal paid: While your personal monthly costs are lower, your mortgage payment is still higher. As a result, you’re paying more principal towards your mortgage by choosing a more expensive property.

In the scenario in point 1, even though we pay $1,000 less per month, we’re still paying just over $200 more principal per month. The result is approximately an additional $12,000 in equity paid down after five years.

Increased benefit from appreciation: If your $300,000 starter home and $400,000 duplex both appreciate by 6%, which makes a greater return? You guessed it, the $400,000 asset.

House hacking can lead to some massive passive income

If you purchase a well-located, desirable property, you’re more likely to have consistent renters and maintain a healthy cash flow over and above your monthly expenses. Having a steady cash flow will allow you to refinance equity out of your existing home and leverage that cash to place a down payment on an additional revenue properties if you so wish and can afford to. Building a portfolio of properties as you upgrade from home to home can potentially act as the building blocks towards your retirement, children’s future or whatever other goals you have in mind. House hacking is a great way to build a sustainable portfolio of property as you periodically upgrade from home to home. House hacking can suit any lifestyle and will keep you flexible enough to pursue the many opportunities that come your way. If you care considering buying a multi-unit property, give me a call if you have any questions. There is lots to choose from out there.

If you have questions or would like me to blog about something in particular, please email me and of course always check back to read and pass along my blogs!

Peter Fourlas – Regina Realtor®
Real Estate Agency
3889 Arcola Ave, Regina, SK S4V 1P5
Phone: (306) 529-0009
Web: www.brandonw343.sg-host.com
Email: Peter@pfourlas.ca