Here on BiggerPockets, “house hacking” has been talked about quite often. The idea of housing hacking is that you can purchase a property in which to live while you rent out certain parts of it. For example, it could be that you are buying a two bedroom house and renting out the other bedroom. Or it could be that you are buying a fourplex and living in one of the units yourself. You are basically having other people pay for your housing expenses, while you work hard on (hopefully) accumulating more real estate.
To be honest, prior to investing in real estate, I hadn’t really thought about my housing expenses that much. My mother once asked me, prior to having read Rich Dad Poor Dad, whether my house was an asset or a liability. My initial answer, of course, was that it was an asset. She, of course, then smugly told me that I was wrong and that it was a liability. Well, it isn’t that the house is a liability; it’s that you need to account for the expenses and opportunity costs associated with how you live and where you live.
How I Bought, Rehabbed, Rented, Refinanced, and Repeated for 14 Rental Properties
This is the dream right? Going from zero to 10+ rental properties, providing stable cash flow and long-term wealth for you and your family, and building a scalable business model to boot! Learn how this investor did just that, in this exclusive story featured on BiggerPockets!
Spending Money on Housing
People do tend to forget that aspect of it, I think. After all, why would some houses be called “starter houses?” There is already an implication that you are supposed to trade for a bigger house later. You are supposed to spend more and more of your money on your own housing. Meanwhile, an investor would think the opposite. They would think, well, why should I spend more and more of my own money on my own housing, when I can use the money to buy more houses to rent them out?
Thus, housing hacking is a great idea in the sense that you are trying to minimize your own housing expenses and use the money you save to acquire properties, or real assets in Rich Dad Poor Dad terms, to generate wealth instead. Let’s face it, you are not going to earn more money just because you live in an expensive house. And I’ve talked about this before in my previous article about how you shouldn’t have to buy your house first before investing, especially if you live in expensive areas like San Francisco or New York.
But I am going to take this housing hacking concept to a slightly different level. When most people talk about house hacking, it usually does involve living in one of the units of that newly purchased fourplex you just acquired. But if that area is not where you’d really want to live, why would you have to live there?
Why don’t you just go rent a place somewhere else and then rent out the property that you would have been “forced” to live in?
The Importance of Housing to Quality of Life
What I am saying is that house hacking shouldn’t necessarily restrict you to live in the place you purchased to invest. Instead of doing that, why not just go out there and rent a place, say, closer to your workplace?
I have family right now living in Boston, working hard to get a down payment for a house in Boston. Meanwhile, they rave about how excited they are to be living in the place they’re renting right now because the location is ideal and they scored a great deal on the rent. However, to try to buy something similar to that in the same location requires a lot more money than they are comfortable with.
So in that situation, why do they have to buy the place that they are living in? Why pay the higher prices, when they are comfortable with where they are? Instead, they should just go use that money to buy an investment property they can get a great return on. Hey, it may not be in the center of Boston, but they don’t have to move over there! They can be living happily where they are now, even if it means they have to pay rent.
All I’m saying is: next time, before you invest in real estate, start thinking about your own housing expense first. Maybe you can lower your own housing expense by renting a smaller place. Or you can reduce your commute by moving closer. Or you can move somewhere else if your workplace does happen to change. By renting, you can have flexibility in trying to get in and get out.
On the other hand, many people fall into the trap of having to sell their home because their job changed or they had to move out of state. You have that flexibility. Then, use the capital you would’ve spent on your own housing to buy properties that yield you a great return. Even if you have to move, you can keep those properties there!
So folks, that’s my version of “house hacking.” What do you think?
Leave me a comment below!