Gateway to real estate: ‘House hacking’
Simply put, here’s how to do it: buy a property with two, three or four units using similar favorable loan types that owner-occupants enjoy. Live in one unit and rent the rest. Learn the ropes for a while and stash any cash flow for repairs and reinvestment. Use the living expenses you save to move out and buy another property. Repeat.
This live-in strategy for building real estate wealth is gaining traction nationwide, and for good reasons. Owners can benefit from as much as a 7 percent annual appreciation rate, according to Realtor.com data, which is the same rate at which rents are rising nationwide. Some metropolitan markets are even experiencing double-digit increases.
It’s not all upside, of course. Owning a multi unit property is a business that requires upkeep and diligence. There’s rent to be collected and you live alongside your tenants, who might become problematic or even require eviction, which can be a drawn-out and expensive proposition. There’s also a potentially larger mortgage liability, paying for unexpected repairs and being stuck with possibly long vacancies.
Yet owners can also take tax deductions for depreciation of the rented portion of the property to save taxes on the income, said enrolled agent and tax consultant Alan Pinck of A. Pinck & Associates. And certain multiplexes qualify for Federal Housing Administration and Veterans Affairs loans with favorable terms, said Ron Haynie, a senior vice president of the Independent Community Bankers of America.
Terms on VA loans, for which only military veterans are eligible, include no money down and lower interest rates, while FHA loans require as little as 3.5 percent down with low closing costs. Both loans allow buyers to finance energy-efficient improvements. Borrowers must demonstrate good credit and income verification.
“There’s so many different ways to use ownership of housing. For us, we really like [this way of investing] because of the training … and offsetting your costs,” said Josh Dorkin, CEO of the real estate investing website and podcast, BiggerPockets, which says it coined the phrase “house hacking” and consistently lauds it for beginner investors, especially the young and single with open minds and lifestyle flexibility.
Sales of owner-occupied “multiplexes” — properties with two, three or four independent units — were up 24 percent in 2015 over 2014. By comparison, single-family properties were up just 16 percent, said Jonathan Smoke, chief economist at Realtor.com.
The values of multiplexes are up 21 percent — also slightly more than single-family homes. The fastest growth is among four-unit properties, where sales increased 52 percent in 2015 compared to 2014.
Source: cnbc.com
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