Okay, so I am definitely not the first person to house hack a duplex and I am certainly not the last. The house-hacking strategy predates the term “house-hacking” by a long shot! But, you know what they say, “if it ain’t broke, don’t fix it!”
Let’s look at why house hacking is the BEST real estate investing strategy for beginners…
House Hacking Defined
Let’s first start by defining what I mean by the term “house hack.” By my definition, to house hack is to buy a property, move into it, and rent some part of that property out to a tenant or tenants. This can be done with a single family property or it can be done with a multi-family property.
While either method is fine, my personal preference is toward doing this with a multi-family property. This is because I just not a fan of sharing kitchens, living rooms, etc. with tenants. I prefer to have my own space, separate from the space occupied by my tenants. Therefore, for my purposes duplexes, triplexes, and four-plexes represent the best options for house hacking.
Although you can house hack larger properties as well, you are going to run into an issue with financing as conventional Fannie Mae financing will not be available to you to buy those properties. You will instead have to turn either to commercial or some other alternative financing sources.
Why House Hacking is the Best Investment Strategy for Beginners
No. 1 – Favorable Financing
A lot of people say that they would like to invest in real estate, but they simply cannot afford it and so they never try. They say that banks are requiring them to come up with 20-25% of the purchase price, which even on the smallest of rental properties will often equal to tens of thousands of dollars out of pocket.
But, this is where house hacking can really show its value. Right now, the government-backed FHA loans allow individuals to buy up to a 4-unit building for just 3.5% down. If we look at a concrete example, the difference in down payment is pretty drastic:
Purchase Price: $100,000
Conventional 20% Down: $20,000
FHA 3.5% Down: $3,500
Closing Costs: comparable under both loan programs.