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