Affordable housing is a big topic these days with high interest rates and skyrocketing home prices. Traverse City and the surrounding area is no stranger to this problem. There are some tricks to affording a home if its just out of reach and you are flexible.
House hacking is a strategy that involves buying a property and renting out part of it to cover some or all of the mortgage payments. This way, you can live in your own home while generating income and building equity. House hacking can be a great way to get started in real estate investing, reduce your living expenses, and achieve financial freedom.
However, house hacking is not without its challenges and risks. You need to do your research, plan ahead, and avoid some common mistakes. Here are some tips to help you succeed in house hacking:
- Choose the right property. Look for a property that has multiple units, such as a duplex, triplex, or fourplex. Alternatively, you can buy a single-family home with extra rooms, a basement, or an accessory dwelling unit (ADU) that you can rent out. Make sure the property is in good condition, meets your needs and preferences, and has strong rental demand in the area.
- Run the numbers. Before you buy a property, you need to analyze its cash flow potential and return on investment (ROI). Calculate how much income you can generate from renting out part of the property, and how much expenses you will have, such as mortgage payments, taxes, insurance, maintenance, repairs, utilities, and vacancy. Subtract the expenses from the income to get the cash flow. Divide the cash flow by the amount of money you invest in the property (down payment, closing costs, etc.) to get the ROI. Aim for a positive cash flow and a high ROI.
- Find good tenants. One of the biggest challenges of house hacking is finding and managing tenants. You want to find tenants who will pay rent on time, take care of the property, and respect your privacy and boundaries. To do this, you need to screen your tenants carefully, check their credit history, income, references, and background. You also need to have a clear and detailed lease agreement that outlines the terms and conditions of the rental, such as rent amount, due date, late fees, security deposit, maintenance responsibilities, rules of conduct, etc.
- Know the laws. As a landlord, you need to comply with the federal, state, and local laws that govern rental properties. These include fair housing laws that prohibit discrimination based on race, color, religion, sex, national origin, disability, or familial status. You also need to follow the landlord-tenant laws that regulate issues such as security deposits, repairs, evictions, etc. Make sure you understand your rights and obligations as a landlord and as a tenant.
- Be prepared for challenges. House hacking is not always easy or smooth. You may face issues such as vacancies, repairs, conflicts with tenants or neighbors, legal disputes, etc. You need to be prepared for these challenges and have a contingency plan in case something goes wrong. For example, you should have an emergency fund to cover unexpected expenses or loss of income. You should also have a network of professionals who can help you with legal matters, accounting, property management, etc.
House hacking can be a rewarding strategy if done right. It can help you achieve your homeownership and financial goals while learning valuable skills and experience in real estate investing. However, it also requires careful planning, due diligence, and hard work. By following these tips and avoiding some common mistakes, you can increase your chances of success in house hacking.