House Hacking? Consider These Factors First

House Hacking? Consider These Factors First

3 min read
Sterling White

Sterling White is a multifamily investor, specializing in value-add apartments in Indianapolis and other Midwestern markets. With just under a decade of experience in the real estate industry, Sterling was involved with the management of over $10MM in capital, which is deployed across a $18.9MM real estate portfolio made up of multifamily apartments. Through the company he founded, Sonder Investment Group, he owns just under 400 units.

Experience
Sterling is a seasoned real estate investor, philanthropist, speaker, host, mentor, and former world record attemptee, who was born and raised in Indianapolis. He is the author of the renowned book From Zero to 400 Units and the host of a phenomenal podcast, which hit the No. 1 spot on The Real Estate Experience Podcast‘s list of best shows in the investing category.

Living and breathing real estate since 2009, Sterling currently owns multiple businesses related to real estate, including Sterling White Enterprises, Sonder Investment Group, and other investment partnerships. Throughout the span of a decade, he has contributed to helping others become successful in the real estate industry. In addition, he has been directly involved with both buying and selling over 100 single family homes.

Sterling’s primary specialities include sales, marketing, crowdfunding, buy and hold investing, investment properties, and many more.

He was featured on the BiggerPockets Podcast episode #308 and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single family investing and apartment investing to mindset and scaling a business online. He has been featured on multiple other podcasts, too.

When he isn’t immersed in the real world, Sterling likes reading motivational books, including Maverick Mindset by Doug Hall, As a Man Thinketh by James Allen, and Sell or Be Sold by Grant Cardone.

As a thrill-seeker with an evident fear of heights, he somehow managed to jump off of a 65-foot cliff into deep water without flinching. (Okay, maybe a little bit…) Sterling is also an avid kale-eating traveller, but nothing is more important to him than family. His unusual habit is bird-watching, which he discovered he truly enjoyed during an Ornithology class from his college days.

Education
Sterling attended the University of Indianapolis.

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House hacking can be a great means for getting into a home. Yet, whether it is a small duplex, a house with a mother-in-law suite, or a condo with a spare room, there are things you need to think about before you dive in.

Management

There are great cases to be made for house hacking by renting out extra units or rooms for short terms on websites like Airbnb. However, in order for this business model to be remotely sustainable, you’ve really got to be prepared. The right systems need to be in place. These include taking incoming requests, doing proper screening, cleaning upon resident turnovers, paying taxes, and dealing with service issues. This can be a full-time job if you attempt to do it all yourself. Do you have that much time? If not, consider which sites you’ll use for promoting your rental: Airbnb? VRBO (to learn more about how to rent your place and list for free on VRBO, click here)? HomeAway (click here to list your place for free on HomeAway—only pay when you get a booking)? Or something else? How much will they take in fees? How much might you have to discount your prices until you build up some positive reviews?

This is Not a Hobby

If you are doing this to make money, as an investment, or to pay for the roof over your head, you have to treat it as a business. Most hobbies don’t make money. Few people will really love dealing with short-term renters and property management. Consumers will want a good experience, and if they don’t get one they will either leave a bad review, not rent from you again, or do both. As a host, you must understand this concept. It doesn’t take many bad reviews to put you out of business these days. If these principles are not understood, then you’ll not be house hacking for very long.

Have a business plan. Be businesslike. Organize your business for credibility and tax benefits.

Related: A New Way To Look at the Concept of House Hacking

Screening

Prospect screening is even more important in house hacking situations. You’ll be living next door (or in the same space) as these strangers in some cases. It’s really hard to accurately determine via the internet what people are really like. Be very diligent. Have set criteria for tenants, and stick to it. Know that some background checks don’t catch everything. You have to go the extra mile. I once allowed four guys who were in town for a bachelor party to rent from me. They were very noisy during their stay. Luckily, the unit was not trashed, but the cleaning took longer than usual. I learned to increase cleaning fees and to set a maximum on occupants.

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Sustainability

As I have discussed previously, when it comes to short-term-rental house hacking with Airbnb, I just don’t think it’s a sustainable model. In my opinion, signing extended leases makes more sense because you’re not constantly spending time (or paying for someone else’s) to handle extremely high resident turnover. Another major risk that goes with short-term rentals is the high volatility of rents. If you are renting daily or for vacations, the income can be very inconsistent. Today’s sky-high Airbnb rates may also fail to be sustainable in a downturn. With the high volume of people getting into house hacking, it may be the smart time to get out. The market is starting to get saturated. The time to get in was back when few people were just discovering the opportunity.

Related: The Tax Implications You MUST Understand Before House Hacking

Summary

In addition to the legal questions surrounding Airbnb, those who are considering short-term and partial rentals as a way to house hack need to pay close attention to the above factors. Do your math, know what you can handle, and be safe.

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Have you tried house hacking? What do you wish you had known before you started?

House hacking can be a great means for getting into a home. But before you jump into it, please evaluate these downsides.