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Riya Tayal | 06 May 2022

4 Ways on How House Hacking Can Help You Buy a House

4 Ways on How House Hacking Can Help You Buy a House

When it comes to buying a house, have you heard of the term house hacking before? If not, you will get to know everything about house hacking in this article. Well, house hacking in India is a modern lifestyle choice that borrows heavily from old-school rage and has been imagined again with the help of modern house-sharing platforms. It is a pretty famous concept in the West and a unique way of investing in a property that might be quite expensive or slightly heavy on your pocket. Besides this, house hacking in India is an interesting concept to balance your finances after a real estate purchase.

So, let's move forward and understand everything about house hacking in detail. 


Meaning of House Hacking

House hacking is a popular real estate investing strategy involving buying real estate and renting a part of it out. One perfect example of house hacking in India is purchasing a single-family house and then renting out a room or remodelling the basement into a small apartment unit. The rental income generated from the rented out portion of the house is then used to pay down the mortgage balance and build equity in the house. 

When the time is right, the property owner can do a cash-out refinance to transform the property's accrued equity into cash and use the money as a down payment to buy another rental property. Apart from this, purchasing a small multi-family property in India like a three-unit triplex or two-unit duplex is another way real estate investors house hack.

The key features of house hacking involve the following:

1. House hacking is a real estate investing strategy that solely aims to completely or partially offset the mortgage payment of the property owner.

2. Single-family and small multi-family houses used as primary residences might be good options for the purpose of house hacking. 

3. Financing a primary residence is generally less expensive than purchasing a rental property, with better terms, interest rates, and down payments as low as 0%. 


How to Properly House Hack a Real Estate?

House hacking of a single-family home or a small multi-family home follows the same general steps stated below:


1. Understand financing options

Conventional loans are one of the most common ways to finance a primary residence through a traditional lender like a financial institution or bank. Interest rates are often attractive, even for borrowers with bad credit scores, and down payments might be 5% or less. As per Consumer Financial Protection Bureau (CFPF), before shopping for a mortgage, borrowers must check their credit report, decide on the purchase price of a house, determine how much of a down payment is required, and budget for change or additional expenses etc. 


2. Search for a great property to house hack

A real estate that is a good option for house hacking might have slightly different features from a house that the owner will live in year after year. This is because most house hackers will turn their primary residence into a rental property as they grow their rental property portfolio. So, it obviously makes sense to opt for a home that will make a great rental from the beginning. Also, while choosing a good rental property, make sure to consider the neighbourhood, property tax rates, average rent, etc. 


3. Crunch the numbers before making an offer

Prior to making an offer on the house for house hacking, investors crunch the numbers in order to get a better idea of the potential amount of income a house might generate. Even though a house being hacked would not be entirely used as a rental at first, investors often look at the day when the real estate can be refinanced and the equity turned into cash to be used as a down payment for another rental property. 


4. Find a good tenant

People on the journey of house hacking and being landlords for the first time must understand the State's landlord-tenant laws to avoid breaking the law or discriminating against a tenant. When the space is ready to be rented out, the investors must carefully screen the tenants to find a good tenant. 


Top 4 House Hacking Strategies

Below mentioned are the top strategies people usually use when looking for a home to house hack:

1. Single-family homes with multiple bedrooms can easily be converted into a self-sufficient suite by installing a kitchen and bathroom. 

2. Multi-family housing where one unit is a primary residence and the remaining units can be rented to tenants.

3. Homes with areas easy to convert to bedrooms, like homes with a den or playroom, can be converted into an additional bedroom. 

4. Houses with the basements or garages already partially remodelled are perfect candidates for house hacking.

To conclude, house hacking in India can be a good way to start real estate investing without buying a rental property that requires a heavy down payment. By simply using an extra bedroom or units in a multi-family house to rent, house hacking can turn a home that's already owned into a real estate that generates rental income.

Also read: 5 Surprisingly Cool Cities Where You Can Buy a Home Under 30 Lakh

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