There’s no sugarcoating it: real estate is expensive. Whether you rent or own, paying for a place to live probably eats up a large chunk of your income. Especially in Colorado, where the cost of living along the Front Range has increased drastically in the last decade, it can be difficult to balance your needs and preferences with your true budget.
In response, many families and individuals are getting creative and turning their residence into extra revenue. Through a strategy known as house hacking, some homeowners are recouping costs and even paying their mortgages by renting out a portion of their residence. This beginner-friendly guide is your roadmap to exploring the financial benefits, understanding the challenges, and laying out a strategy for stress-free house hacking.
What Is House Hacking?
House hacking is the practice of turning your primary residence into an income source through short- or long-term rentals. House hacking strategy generally involves purchasing a multi-family home such as a duplex, or finding a property with a mother-in-law suite that has a separate entrance.
In some cases, a few small renovations can transform a traditional single-family home into property suitable for house hacking. For example, a unit in the basement or an apartment above the garage can easily be repurposed into a comfortable short-term rental. You could even renovate a garage or use a spare bedroom depending on your comfort level.
Finding ways to hack your home can yield financial benefits in the long-term, even unlocking access to homeownership for those with tighter budgets. This trend has been gaining traction among Colorado homeowners and buyers eager to dip their toes into real estate investing without the overwhelming commitment. The beauty of house hacking lies in its flexibility; it can be as simple or as ambitious as you're comfortable with.
The Financial Benefits of House Hacking
The motivation to hack your home lies in the fact that you can cover a good portion of your living expenses using an asset you need anyway: a place to live. Depending on the property and its location, you might even be able to cover your entire mortgage payment through rental income.
Particularly in a lucrative and consistently growing real estate market like Colorado, the other benefit of house hacking is that you’re not only saving on monthly living costs, you’re also building equity. As the years pass and your renters help decrease the amount you pay on your mortgage, you’ll be sitting on an appreciating asset that will benefit you financially in the long run. All while building equity in your home, you’ll be living at a drastically reduced cost. Especially for those who feel nervous about total monthly payments, this is an excellent strategy for breaking into homeownership while honoring your financial responsibilities.
Key Challenges of House Hacking
No type of investment is without its risks and challenges, and house hacking is no exception. To hack your home, you may need to invest in renovations up front. If you’re still house hunting, you may have to narrow your search significantly to only consider homes that will work for this ultimate goal. A duplex or a home with an extra unit may come at a slight premium, though in many cases, mother-in-law suites are existing features in single-family homes and may not incur steep extra costs.
Whether you choose to go the short-term rental route through Airbnb or a similar service, or you opt to find long-term rentals and manage tenants yourself, there are risks and responsibilities to consider before becoming a landlord. House hacking with a family means you’ll want to carefully vet anyone who will be living on your property, and you may want to install additional security measures for the comfort of your guests and your family. You also run the risk of having some months with no tenants or rentals, which can throw off your cash flows without proper planning.
Finally, the day to day requirements of being a landlord can be demanding. From small fixes to large disruptions, you have to be on call to schedule repairs and tend to any breakdowns and damages. If you end up renting your unit short-term, you might need to spend time on marketing and guest management as well.
For individuals who are prepared to take on the planning and organization required to manage a rental property, the challenges of house hacking are generally well worth the effort.
House Hacking Strategy: How to Get Started
In order to hack your home, begin with finding or creating the right space. If you already own a home in a high-demand area, repurpose your existing space into a multiple-unit property. If you’re on the hunt for a new home anyway, time to narrow your search criteria. Work with a reliable lender to determine the best financing options to get started.
Spend some time talking with your realtor about the current real estate market in your chosen area. A qualified realtor is your best resource for understanding the demand and the community in any neighborhood you’re eyeing. They can also help dig into the numbers to help you decide between renting short-term or long-term in a particular area. The Rob Thompson Homes Team is here to help — we’re always a quick text or phone call away!
Once you’ve got your space sorted out, crunch the numbers to determine the right rates for your rental unit. Whether you rent by the night or on a monthly basis is up to you, but be sure to factor in maintenance, insurance, property taxes, and potential downtime. Calculate a rate that will be competitive without putting you at additional financial risk. As you move forward with your house hacking strategy, be sure to consider all of the potential zoning and HOA restrictions as well as local landlord-tenant laws to ensure you are in compliance.
House hacking is helping more Colorado residents to become homeowners and grow their equity without large monthly mortgage payments. Whether you’re a blossoming investor or a couple looking for smart ways to save, house hacking can be a lucrative undertaking. By leveraging your primary residence, you can enjoy the benefits of property ownership while making back some of your costs, all while living in one of the most beautiful states in the US.
Embrace the adventure of house hacking and join the ranks of Colorado homeowners who’ve discovered the joy and benefits of making their home work for them. We’re here to help and advise at every step of the way. Give us a call today at 719-337-7254 or 720-498-9592.
