House hacking is worth it when you take the proper precautions, such as doing research on the property you are purchasing, ensuring your property is properly zoned for a rental space, and that your rental areas are up to code.
Last year, we bought a house. On our property sits a 3 bedroom 2 bathroom guest house that we rent out as a short term/vacation rental, mostly using AirBNB. The money that we earn covers our mortgage every single month– plus some. This is commonly called house hacking– where you buy a property that has two or more living units on it, you live in one, and you rent out the other(s). One of the most common questions we get when people find out we’re doing this is….
IS HOUSE HACKING WORTH IT?
Whether house hacking is worth it depends on a lot of factors and ultimately, it’s up to you whether house hacking is worth it or not. Here are a few pros and cons to consider whether house hacking is worth it.
PROS OF HOUSE HACKING
House hacking can pay your mortgage.
One of the biggest and most obvious benefits to house hacking is that you can get your mortgage paid for by your tenants or guests. This frees up cash flow in your own personal budget so you can spend more money on the things that matter most to you, perhaps investing in more rental income properties to grow your wealth even further! Having my mortgage paid for every month makes house hacking worth it to me!
House hacking can be lucrative.
House hacking can be surprisingly lucrative. Depending on where you live, you can make even more than the cost of your mortgage every month, especially if you are willing to do a short term or vacation rental. During our busy season, we can easily make about twice the cost of our mortgage every month.
House hacking can be fun.
We do a vacation rental to house hack and it’s kind of fun! We’ve loved meeting people from all over and providing our local advice of things they should do while they’re visiting. It’s fun to get positive reviews and kind messages from our guests who had a good stay.
You can use profits for future investments.
House hacking has made it possible for us to make other investments we wouldn’t have been able to make if we hadn’t house hacked. We simply use our profits from house hacking and dump them into other things.
Tax benefits.
You can deduct rental expenses, including depreciation, from your taxes when you house hack. I’m not a CPA, just a crazy lady on the internet, so check with your accountant. But for most people, this means big savings.
Allows you to live somewhere you wouldn’t be able to afford otherwise.
House hacking can allow you to live somewhere that you otherwise couldn’t afford. Technhas allically, we could afford the house we bought, but I was really uncomfortable with the size of our mortgage. House hacking has allowed us to live right at the base of mountain biking and hiking trails, on more than 1 acre, with a big pool and grotto. It’s also convenient that we have an entire 3 bed 2 bath guest house for when our families come to visit.
Passive-ish income.
Another thing that makes house hacking worth it is the passive (ish) income nature of house hacking. If you’re doing a long term rental, you’ll of course have to screen your tenants and deal with maintenance issues that arise (for short term, you’ll have to deal with bookings, arrivals, cleanings etc) but overall, it’s a pretty passive way to make some serious extra cash.
Good entry point to real estate investing.
One last thing that I love about house hacking is that it’s a really good entry point to real estate investing. You’ll learn a lot about taking care of a rental income property while you do it to decide if real estate investing is right for you.
CONS OF HOUSE HACKING
You’ll be dealing with renters or guests.
One of best parts about house hacking can also be one of the worst parts– and that is dealing with your tenants or guests.
If you’re doing a long term rental, you’ll of course do back ground checks and good screening of your tenants. And if you’re doing a short term rental, there are precautions you can take and you can approve or deny requests to stay at your place. But even the most cautious landlords still have to deal with tenant/guest problems occasionally, and that can take up time and or be a head ache.
Someone might trash your place.
I think the best advice I was given when we decided to list our place on AirBNB was to “just expect the place to get trashed at some point.” Despite our best efforts to screen our guests, this can happen.
I learned the hard way to never allow same day bookings of our AirBNB. Someone booked our place at the last minute, claiming she’d missed her flight home and she just needed to crash for the night before she could take her next flight out of town. After she’d been inside our AirBNB for a few hours, she messaged me saying she couldn’t stay there because it smelled like sewer. I of course issued her a refund and promptly called a plumber and headed over to the AirBNB. I was very surprised to find that she was still there– hours after she’d checked in and said it was too stinky to stay. Once I knocked on the door, she and a group of people left. In the couple of hours they stayed, they used both showers, all of the towels, tons of dishes, slept in all 3 beds, and left trash everywhere. To their credit, it did stink in the AirBNB. It smelled just like a stink bomb had gone off.
And that’s because that’s exactly what had happened. They’d let off a stink bomb in our house, used the place, got a refund, and left.
Someone might break the rules.
One one occasion, someone hacked another persons account on AirBNB and booked our place. So from my perspective, this woman had good reviews and her identity was verified. The problem was– it wasn’t her! Another woman hacked her account and threw a massive party in our AirBNB. It was a total nightmare. (I will say, AirBNB did a great job reimbursing us to have the place deep cleaned and getting everyone kicked out). It was annoying to say the least. So despite your best efforts, your tenants or guests might break your rules.
You’ll need to figure out pesky things like taxes, your LLC, etc.
Another con of house hacking is that you’ll have to figure out some logistics, like taxes, your legal entity for your rental unit(s), you’ll have to find tenants, and maintain your rental income properties.
It doesn’t scale.
The biggest con in my mind of house hacking, is that it doesn’t scale. Meaning, you’ll only ever have one place to rent out, which limits the amount of money you can make. You can make more money by investing in things that can grow (scale)– ex: I invest in an app. There’s no limit on the amount of people that can download the app, which means my earning potential is unlimited. Unlike a rental unit that can’t expand.
Could be impacted by economy/no renters.
Another thing that might make house hacking not worth it is that your earning potential could be impacted by the economy. If you don’t have renters, you are stuck with your entire mortgage to pay. So be careful to not get in over your head, and make sure you can still afford your mortgage even without renters/guests.
IS HOUSE HACKING GOOD?
Whether house hacking is good depends on what kind of property you bought and where you are located. For us, house hacking has been incredible. It’s paid our mortgage every month and we’ve been able to meet lots of people from around the world. And we have peace of mind knowing we could afford our mortgage even if we decided to stop house hacking, so we aren’t stressed about covering our bills each month.
House hacking could be bad if we couldn’t afford our mortgage and couldn’t find tenants or guests. As long as you do your research before buying your property, house hacking can be great.
IS HOUSE HACKING LEGAL?
House hacking is legal in most states. Where people tend to run into trouble is when they try to run an AirBNB in states like Hawaii in zones where AirBNB’s aren’t permitted. Or, where they try to convert a single family unit into multiple units or try to otherwise get around local zoning laws and restrictions. Make sure your rental space is up to code and properly zoned for the way you intend to use it so that you don’t run into legal trouble.
House hacking can be totally worth it so long as you do your research before launching into it. It certainly doesn’t serve as a long term investing strategy but can be a great way to make a little extra money for a little extra effort.
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