This week, I continue my series of beginner real estate investing strategies. With so much information out there, I want others to have all the facts to take those first investing steps, so they begin building a strong portfolio from day one.
The strategy for this week is an ideal strategy for the younger generation of people looking to get into real estate investing but also need a place to live. It's called ‘House Hacking’
With this strategy, you are essentially living in a property whilst renting another part of that property to a tenant(s).
This could mean renting out rooms in your house, renting out a basement apartment or a second bedroom in a condo. The tenant could also be in an entirely different unit if the property is a duplex, triplex, fourplex etc. Perhaps you have an apartment above a garage, or a coach house. But essentially it is you living in a property and renting out the other available space in the property to other people.
A housing expense is probably your largest monthly living expense. So not only does this strategy offer a solution for a place for you to live, but it also allows you to have other people help you pay down the property at the same time. It could actually allow you to live completely free.
This could allow you to free up your biggest expense (which is your living expense) and save that money so that you could put that towards other investments.
You can get going on investing so much faster than if you have a full-time job and you're using pretty much all of your money for your housing expense and not really getting ahead or being able to save your money towards your investing goals.
Another great advantage of this strategy is it can really help you begin to learn the ‘how to’s’ of property management.
By having tenants, you’ll be able to learn how it works from the management perspective. Learning what common tenant issues are, how to keep records of property management, the laws, etc. will help you to decide whether or not property management is something you want to do going forward or something you want to outsource.
Either way, it's a great way to get the ‘first-hand’ learning experience.
The other thing you can do is plan to keep ‘House Hacking’ as part of a bigger real estate investing strategy.
You may choose to start with a ‘house hack’ when first starting out, so instead of purchasing a property as your primary residence that is going to drain all of your income from your job, you could start out by using this strategy.
The idea would be to rent out other portions of the property and then plan to live in there for just a short period of time, say 1-2 years and then turn around and buy another property but keep that original property.
That idea combines a few investing strategies but that's a great way for you to put less money down because it's your primary residence, get favourable financing, and then keep that favourable financing to then move on to the next property.
Over time, 5-10 years, it will really allow you to build up a great portfolio of properties while still enabling you to have so much more of your own personal cash flow because you're not spending it on that major living expense.
As with any strategy, there can be some downsides to consider.
Firstly, you have to be willing to be flexible in the sense that you're going to be sharing your property with tenants.
This can be done in different ways depending on your tolerance for this. Some people absolutely do not want to live with their tenants, and I completely understand that. But for some people that are perhaps younger, they don't have a family, and/or they're used to having roommates, this strategy could be more appealing.
Just make sure you are completely fine with having roommates or renting out another unit in your property and dealing with sharing a space with somebody else.
The other thing with this strategy is that you are potentially going to be moving a lot. You're going to move into a property, ‘house hack’ that property, do it again and again, and again.
So if you have the tolerance to be able to do that, then I think this is an awesome way to check off a lot of boxes and build a portfolio while cutting down on your living expenses.
I think that ‘House Hacking’ is a really, really smart way for beginner investors, especially for the younger generation of real estate investors, to get involved and get started building their portfolio.
When you're younger, you're usually more used to sharing your space with roommates or maybe you're not home as much either so it’s a great way to begin to build your future financial freedom.
What’s your favourite beginning investing strategy so far? Leave me a comment below, I’d love to hear how your building your future financial freedom.