Categories Property Management

Three ways to reduce (or eliminate) your mortgage payment 

My new client sent me an article on house hacking, with the note: I guess what I am trying to do is called house hacking. She was surprised that I didn’t know what house hacking meant. I heard the term so much, I assumed everyone did. She is financially savvy, but she didn’t know what it was. This blog post is all about that.

1. What is house hacking

In general, house hacking is a way to reduce your mortgage payments by renting parts of your home out either short-term or long-term. The person who house hacks is usually the owner and lives on the property, but uses other people to lower their mortgage.

2. How do you house hack?

Here are the three most common house hacking models.

Airbnb and other short-term rental platforms

Airbnb, and other platforms for short-term rentals can make house hacking easy and common. You live in the home but use Airbnb to find tenants to rent out your space while you’re there or away.

You can increase your nightly rent, you don’t have to worry about the guests being permanent, and you decide how many times you want to rent out your house.

Airbnb has some disadvantages, including the need for more communication between you and your guests. You also have strangers rotating through your home.

My clients prefer this model because it is easy to find tenants and they can control who comes and goes and for how long.

Rent a Room

This scenario involves renting out rooms for 30 days or longer to long-term tenants. You will usually provide a queen bed in each room and a TV, as well as furniture for the common areas. You also pay for shared utilities such cable, electricity, wifi, and trash. The typical way to price these rooms would be to charge between 70 and 75 percent of the cost of a studio in your area.

I am working with a client who is currently buying a five-bedroom home (4 bathrooms) for the third time. will rent out the other rooms. He has already rented two rooms for $800 each on leases lasting three months or more. His closing is two weeks away. He knows that his first three months’ mortgage payment will be at least $1600 less.

This model has the advantage of being able to find individuals that need rental properties much easier than groups. You can also charge more with this model. If my client receives $800 per room, he will make $3,200 in rents. The average five-bedroom house in the area rents at $1,700 per month.

This model has a disadvantage… people. They will be in your kitchen and living room. You’ll also need to talk to them.

Rent the Basement Out

It is beautiful to have a basement with its own entrance. This is why I am in the process of purchasing this type of property. You’ll still be responsible for paying utilities and furniture but you can choose to rent for a short term (Airbnb), a medium-term (30-100 days) or a long-term stay of six months or more.

This model has the advantage that you can live two separate lives, without ever bumping into each other. And because this is your primary residence, it gives you more freedom to choose what model you want.

This model has some disadvantages. You may have to share the kitchen and laundry with the renters, or you can accept less rent in exchange for not sharing your kitchen and laundry with them. (I do this because… people).

3. How can you find tenants for house hacking?

Airbnb, VRBO and are all obvious options to find tenants. Many people believe that these platforms only cater to short-term tenants, but they can also be used by long-term tenants. SpareRoom and Roomster are also good options for finding renters.

Our clients love house hacking. It allows them to pay the mortgage for a home that is less desirable while living in a more luxurious home. It is also a great way to start investing. House hacking can be a good way to learn about investing without taking a big financial risk.

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