Sometimes home affordability is simply out of reach for some. For others, finding more out-of-the-box solutions may be just what is needed to build a successful investment portfolio and create a more financially secure future.
If you have recently purchased a condo or a multifamily home and you are itching to purchase another one already, then you are going to need to find ways to free up some income to make that possible. So, what can you do? Two words. House hacking.
The Popularity of House Hacking
House hacking has actually been a strategy that has been around for a while, but it is only now becoming more and more popular. Housing is becoming less affordable, which means that home buyers have had to adapt and find new ways to own homes without going broke.
House hacking allows you to take advantage of all the benefits of being a homeowner while also raking in the extra income as a landlord. With housing expenses being one of the more expensive lines in our budgets, house hacking is a way to eliminate this lofty expense and free up money for other real estate investments.
Gaining Financial Freedom
House hacking is a way to invest in a property that is much more affordable, appreciable, rentable, improvable, and deductible. It also allows you to increase your income and savings rate dramatically because each month you will collecting rent from your tenants.
Plan for the future. Always follow the one percent rule for real estate. If the monthly rental income is greater than 1 percent of the total purchase price of the property, then it may be a decent purchase to add to your portfolio. You will also want to consider the cap rate and the net income after all expenses.
When considering house hacking, there are lots of things to consider to ensure that you are making a worthwhile investment. Take your time and pick the right neighborhood so you can charge more profitable rental rates. You should also make sure to budget some money for repairs that may be needed. Doing this is another great way to safeguard your investment and account for any unexpected expenses.
If you take your time and do things correctly, you will find that you can easily reinvest your cash flow and expand your portfolio. Planning ahead is also a good way to help counteract the effects of any market fluctuations that may threaten to derail your success.
A Closer Look At An Example Calculation
This example shows how the income from the second unit covers ~85% the entire monthly mortgage (including insurance and property taxes)
Type of property: Duplex
Sales price: $ 940,000
Down payment: 20%
Exchange rate: 3,5%
Income second unit: $3,000/month
Monthly cost including home insurance and property taxes: $3,500