5 Reasons to House Hack Even if You are Scared

House Hacking

House hacking is a way to achieve financial freedom. Even if you are renting now and don’t think you could ever buy a house, becoming a home owner is much easier than you might imagine. Even though buying a home can be a great financial move, if you really want to create wealth, the way to do it is by owning investment property.

House Hacking is the secret sauce to becoming an investor the easy way. Let me be clear when I say easy way, I am not talking about get rich quick scheme or a magic bullet. House Hacking requires work and chutzpah, but as soon as you understand the reasons to house hack, you will get your mindset right and get started, bringing you one giant step closer to financial freedom.

If you know that you should be House Hacking, but something is holding you back, here are 5 Reasons why you should House Hack now, even if it scares you.

1. Low Barrier to Entry

Become an investor for as little as 3.5% down.

Lots of people want to become real estate investors, but the number one reason I hear as to why people do not invest in real estate is lack of funds. It takes a lot of money out of pocket to purchase an investment property.

Most lenders require a minimum of 20-25% of the purchase price as a downpayment.

Lenders care about risk. And when you are buying a home as your primary residence, the bank considers this to be the least risky. The thinking behind it is that if you fall on hard times and can’t pay your bills, you will do everything you can to pay your mortgage since it is where you live.

That leaves other bills- like the payments on investment properties at risk. The bank thinks that you are much more likely to stop paying that bill in hard times.

Although it is painful to lose an investment property, it hardly compares to the trauma of losing your home. This makes the bank feel safer- so they are willing to require a much smaller down payment on a property that you plan to live in.

This is the secret to house hacking. Even though you are buying an investment property, the bank considers it owner occupied if you will live in one of the units. This makes them feel safe enough to forego the 25% downpayment requirement and reduce it to as little as 3.5% down.

So on a $225,000 property, instead of $56,250 , you can get in for as little as $7875.  Do you see how much easier it is now? Can you start to picture yourself as an investor? It’s a friggin no brainer, and the number one reason to house hack.

2. Reduce Your Monthly Cost or Live for Free

When you rent an apartment, you pay rent every month and have nothing to show for it when you move out.

When you buy a house, it is quite different. Every month when you pay your mortgage, you are paying down the loan and building equity.

That’s great, but the struggle is real. Whether it’s rent or a mortgage payment, you still have to earn enough money each month to cover the check.

When you own investment property though, the tenants are buying it for you. That’s how you should see it- the rent they pay is actually buying the property for you.

So, if you buy a multi family, and the rents from the other units pay your mortgage, you not only live for free, but you got people to buy the building for you. All you had to do was come up with the 3.5% downpayment.

And as long as you own it, it will provide income to you.

Every.

Single.

Month.

3. Save Money on Taxes

Enjoy tax savings. * We are not accountants- so seek professional advice. Here are some topics to discuss with your tax professional.*

The government encourages home ownership, and therefore offers tax incentives to encourage people to invest in real estate.

Some of the closing costs you pay to purchase the property can be written off as well as the ongoing mortgage interest. These write offs in effect, reduce the amount of your income that is taxed. You can also write off expenses, such as repairs, lawn care, maintenance, etc,.

Tax savings alone are often reason enough to house hack. It is possible for you to earn back the downpayment in the form of tax savings, effectively acquiring the property for free.

Just be sure to get advice from your accountant.

In the future if you decide to sell and invest your money into another investment property, you can take advantage of a 1031 Like Kind Exchange.

This tool is offered by the IRS and allows, under strict guidelines, the deferment of all capital gains tax when you sell your property, allowing for your investment dollars to grow tax free and create unlimited wealth.

4. Brr. Buy. Refinance. Repeat.

House Hacking is a step toward something bigger and one property is usually not the end game. As you live for less than you used to, below your means, or for free, you will have extra money in your pocket each month.

The key is to put that money aside, even open a separate account in a bank across town to make it really difficult to access the money on a whim.

Save it. Watch it grow and get addicted to the high that accompanies its’ growth.

Save with intention. Be clear on your reason for saving- to house hack again and again.

Then when you have enough to put down on your next property, buy it as an owner occupant, you will get the low down payment benefit again. You don’t have to sell your property in order to buy the other one like most people do.

You get to rent it out, move into the new one and build your investment portfolio. Renting out your unit allows more flexibility and freedom than having to see it in order to move. Pack your shit and go.

Or, rent it out and make an advanced move. Do a cash out refi and pull the equity out and use it to purchase another investment property.

You went from renting to owning two properties and creating a real estate empire.

Go you!

5. Create a Passive Income Stream.

Are you at work right now? Did you have to get up and shower and put clothes on? Or, COVID style,  go into the other room and lock yourself away from the screaming children? 

You have to work. Even if you like your job. Even if you love it, you have to go, and that sucks.

It can feel like jail with no way out.

If you are trading your time for money, and then using the money you earn to pay for your life, you are living a linear existence.

You are on a financial hamster wheel.

In order to break the cycle and create wealth, you need passive income, and that is where rental income enters the picture. Rental income means that you are literally making money in your sleep.

Break the cycle of trading time for money. You only have 24 hours in a day. 

Next Steps.

Now that you know the 5 reasons you should start House Hacking today, it’s time to get started. Come to our next free session, House Hacking Your Way to Financial Freedom to find out how to take the first step.

Attend one of our free live sessions presented by Janis Benstock, Broker , Marc Brown, Senior Loan Officer at Loan Depot, and Danielle Vance, Real Estate agent and House Hacking expert.

Stick around for the live Q&A and receive our PA Homebuyer’s Grant Guide with information on how to apply for up to $10,000 to help you buy your home.

All sessions are free, but you must register HERE

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