House Hacking? Consider These Factors First

by | BiggerPockets.com

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? Home Away? 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.

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.

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

About Author

Sterling White

Sterling White started in the real estate industry at a early age back in 2009. The company he co-founded Holdfolio is a real estate crowdfunding platform based in the Indianapolis market. Before founding Holdfolio Sterling and partner Jacob Blackett were involved in the purchasing and selling of 100+ single family homes nationwide. In his free-time he trains for a World Record.

4 Comments

  1. Adam Britt

    So just when I am at my absolute most excited, searching frantically to start investing (and House Hacking as my ideal start) I read this and a post by Brandon about “5 Not-So-Great Aspects of REI.” You guys are killing me!

    I’m definitely one who is constantly guilty of “analysis paralysis”, which I want to avoid, but I certainly want to keep all aspects in mind. You pose very good questions to consider, many things I’ve been thinking about constantly for the past few days! Your post hit a major underlying chord I’ve been battling.

    Just to play devil’s advocate with myself, I have also been considering alternatives. Say I don’t house hack (for all the reasons you mention, and many others). I’m stuck buying either a super crappy apartment/house I can afford in a very unsafe location (because that is all I can find where I live, after months of searching), or I buy/continue in my decent house rental in a good location that continues to eat almost half of my take home pay. The rest is eaten by a 131,000 dollar student loan debt I married into (and my wife only makes <30k before taxes! I hate education). As I consider the pro/con list, I feel that house hacking (to start my portfolio) is the ONLY way I'll get out of debt before I die (literally). Scott and Ben have convinced me of that!

    Have any advice/thoughts for a fella like me? What options would you suggest outside House Hacking to address such a debt avalanche? Or would you suggest house hacking in my case?

    That being said, what I THINK need is information to deal with these major downsides of Hacking. I would love to hear more about your specific systems that help you with Screening, Managing, and Sustainability!

    All advice is welcome!

    • Sterling White

      The key for you is to just start. I tried multiple models when I first started and found one that worked for me through that process. The house hacking can be profitable if the correct systems are implemented.

      I use industry specific softwares to help with screening and property management. Propertyware, Yardi and Appfolio are a couple you can look into. There are others as well.

      I hope that helps.

  2. Matt Mainini

    I house hack by renting a room in my house and I agree that taking action is the way to go. You’re never going to know everything until you need to do it, so just get started. I found that after a year of noisy living I discovered that I can “easily” split the house into more of a duplex, which affords me some extra privacy. Yes I had to learn new things, such as how to build an interior wall, but it was a good experience and I’m more comfortable with my situation. I’m sure with enough need/motivation, anyone can figure it out for themselves.

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