What’s that, you say?? If you want to buy a home and you want to have someone else pay all or part of your mortgage, this may be the strategy you’re looking for.
House hacking is when you buy a duplex or multi-family home, live in one of the units and rent the others out.
This is a great idea if you are handy and willing to put some sweat equity into a house as well because you can fix up one side and then the move and do the other. Refinance, or simply live there and if you now have an updated rental, you may be able to raise rent and attract a long term tenant.
I especially like this for people that have low down payments – because you are living in the multi-family (up to 4 units) you can qualify for an FHA 3.5% down loan at a higher rate and the lender will take your rent into account as part of your income.
Loan limits on a single family home are $331,760 in MN, and up to $736,450 for a fourplex.
Check out the Bigger Pockets podcast for more real estate investment info. 🙂
If you currently rent and you’re on the fence about whether or not to buy I’m going to lay out some pros and cons for your consideration…
You’re not spending your money to make your landlord rich. Every payment you make takes you one step closer to actually OWNING your home.
Rents in Minneapolis are averaging $1850 for a 2 bedroom apartment. If you can afford to pay $1850/mo for space in an apartment building and you have good credit, you could afford a home with a price close to about $300K – even with an FHA loan (3.5% down instead of 20%) and including mortgage insurance, homeowners insurance and property taxes. (According to NerdWallet.com mortgage calculator). The average price in Minneapolis is about $280K!
If the house appreciates (increases) in value – that increase is YOURS. This is more than theory, it’s actual equity in your home. This means that if you refinance or need to rid yourself of mortgage insurance ($100+/month if you didn’t put 20% down) because now you DO have 20% equity – you can have the house reappraised and get out from under that monthly bill. Any money that is going in your pocket instead of someone else’s is a WIN.
In addition to that, if you live in your house 8 years and the value increases by $50,000 while you live there – that money is YOUR money. Not a landlord’s!
There are tax breaks to incentivize home ownership. Mortgage interest (and at first that is most of your payment) is typically deductible on your income tax! YAY!
Rents go up… but your house payment will stay the same. Having that stability can be a very reassuring thing when other things are uncertain.
It’s your home – want pink walls and green carpet? No one will say you can’t do that. You can choose to live in an environment that speaks to YOU.
Privacy… tired of listening to your neighbors walking on your ceiling? Sick of dealing with someone parking over the line in the lot? Next apartment have a dog that barks constantly? If you have your own place, you don’t have to deal with that.
I’m going to add a sense of community here. Something I love about owning a home is being invested in my neighborhood. Knowing my neighbors. Enjoying local businesses. Having my kid have long term friends nearby.
Reasons to continue to rent!
If you need, or like to, move often – owning might not be your thing. It’s more difficult to sell a home than to break a lease.
You’ll be responsible for maintenance and repairs – if it’s a single family home that likely means lawn mowing and possibly shoveling. If something breaks – you have to find someone to fix it. I recommend learning to do as much of this yourself as possible – it feels good to be able to take care of your own home.
If you have a lot of debt – you may wish to take the time to pay that down before jumping into home ownership. Having less debt when you apply for a loan is a positive and can pay off in the long term.
Do you have questions about the home buying process? Let me know. I like helping people out.