House hacking is a great way to offset living expenses.

What is House Hacking?

Confession: I’m 33 years old and have only lived alone for a single year of my adult life. I’ve just always had roommates. They’re with whom I shared chores, heartbreak, and adventures.

So for me, when my then-boyfriend and I moved in together years ago, it was natural that we kept his roommate. But it was also intentional.

Sharing our living expenses in our first apartment allowed us to travel and play more. And then, when we focused on our goals, it gave us extra cash flow for a wedding and buying a home after more than a year of saving aggressively.

There’s a name for our lifestyle: house hacking.

When we moved into our home, our roommate came with us. And then a second moved in. Since then, we’ve rotated a couple of friends (or adopted family members) into the rooms until a baby became the newest roommate. Even though he jokes, “no new roommate,” our current roommate turned into my daughter’s favorite human – the uncle who throws spontaneous dance parties, judges her outfits, and sips tea with her when his adult friends are on his nerves.

We’ve reaped a ton of financial and social benefits from house hacking. Here are some of them.

Financial benefits of house hacking:

  • Shared expenses
  • Ability to tackle more financial goals, like paying down my husband’s massive student loans
  • Home improvement and emergencies are less overwhelming
  • Built-in dog sitter
  • Benefits of their work perks
  • Extra money for gardening
  • No need for therapy when your roommate can’t escape being your ear
  • No FOMO forcing us to leave the house and spend

Social benefits of house hacking:

  • Sharing the burden of chores
  • Feeling safer and less isolated
  • Live-in accountability partner that reinforces positive behaviors like healthy eating and fitness routines
  • Someone to bully my husband into watching chick flicks
  • We can go on adventures together that hubby avoids
  • Shopping buddy
  • Dance parties
  • Extra support during a pandemic or when a baby is being, well, a baby
  • Exposure to new things
  • Increased level of overall fabulousness (but that may just be specific to Christopher)

The list goes on and has some variability throughout our history of roommates. More on this later.

There are some downsides to renting a room as a house hack:

  • Chores – some roommates are cleaner than others
  • Rent payment tardiness – it’s one thing for there to be a pandemic, but managing a roommate who is chronically late is admittedly awkward, challenging, and potentially financially jeopardizing
  • Lack of privacy
  • Social discord and not getting along
  • Lifestyle conflicts (hello, thermostat)
  • Noise
  • Increased responsibility (For instance, we don’t mind hand washing dishes when the dishwasher gives out)

Full disclosure: We’ve been lucky only to have one roommate who was chronically late with the rent, Covid passably excluded, and another who was dirty. As in, our apartment charged us a fee for how gross their bathroom was on move-out.

We weren’t happy with another roommate because, frankly, their lifestyle was different from ours. Imagine gamers living with athletes. Even in that situation, we just went our separate directions after a year. There weren’t arguments, just a misalignment in values. Your ability to cope with less than ideal living situations is subject to your tolerance level.

Let’s say you decide against renting out a room, but you have an opportunity to buy a duplex or put a trailer or tiny home on your property.

General challenges of being a landlord

  • Repairs
  • Collecting rent
  • Screening tenants
  • Dealing with problem renters, including evictions
  • Legal concerns – local laws vary. Example: You may have a ton of land but not be eligible to put a trailer or tiny home on your property.
  • Managing finances, including paying taxes

How can you tell if house hacking is worth the trouble?

House hacking can be even more complex and strategic. For instance, if you’re trying to reduce or eliminate your housing payment, you’ll have to understand your cash flow numbers.

Running the numbers on house hacking

The Net Operating Income (NOI) is the amount of money your rental property will produce before paying your mortgage and income taxes. Your NOI is important because it tells you how much of your monthly mortgage payment will be covered by rent.

Disruptions in payment, like a pandemic, could be disastrous to your budget if the numbers aren’t correct. While my husband and I chose to rent a room to reduce the mortgage payment burden, we didn’t invest in a property or over-extend ourselves financially before buying. We bought a house we could afford without them. But because of those roommates, we have been able to reinvest into our home with solar panels, a soft water system, gutters- all kinds of good adult stuff.

Personal considerations in house hacking

Renting a room out isn’t all sunshine and dance parties. Being a landlord or even sharing a home is a deeply personal experience. You alone know how much convenience, privacy, and the burden of increased responsibility are worth.

Take a good look in the mirror and ask yourself:

  • How flexible and social are you?
  • Can you withstand a financial blow if someone can’t pay? If so, for how much and how long?
  • How much free time do you have to manage the property?
  • Are you protected with liability insurance?

You can create a situation that works best for you by vetting your tenant, planning ahead, and considering your options. While this seems time-consuming, house hacking can be rewarding socially. Plus, it has the potential to be a supremely lucrative investment strategy.

Rolling house hacking into a real estate investment strategy

For many starting in real estate investing, house hacking is the first step. They’ll buy a place, rent a portion of it, and refinance it. Often this will be a property that requires a little work, i.e., flipping. This particular strategy is known as the BRRRR Strategy (Buy, Rehab, Rent, Refinance, Repeat). 

If long-term rentals aren’t in the cards, you’re in luck. You could trial living with your parents or short-term stays through peer-to-peer rental sites like Airbnb.

Short-term stays with Airbnb

Avoid the pressure of collecting rent and long-term social interaction by renting out spaces for short-term stays. Guests can come and go; best of all, you can block out dates for increased privacy.

But, know that there are costs to hosting on Airbnb. These include cleaning fees, increased utility bills, taxes, Airbnb’s host fee, and property maintenance.

You also might need approval from homeowners associations, and if you’re renting, you may need permission from your landlord. Your city could require a business license, and you may owe local taxes on any income you earn.

Weighing the risks and rewards of house hacking

Having roommates has helped us offset living expenses. We should be rolling in the bank, but with lifestyle inflation and student loans, we still have more work to do financially. The thing is, house hacking and having a roommate has helped us immensely. We worry a little less about making ends meet every month and can accomplish goals (like buying a small plane) a little faster.

That’s not all. For us, renting out a room was simple and natural. Acquaintances became friends, and friends became adoptive family members. Their value as roommates was more than just their rent. I am still the emergency contact for one of my former roommates. I’m the unofficial life coach of another. And when I need a vent session, lift, or pick-me-up, I have a Rolodex of former roommates I can call. When this pandemic is really over, I can’t wait to have the biggest, loudest barbecue with them. My life is richer because we are house hacking.

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