House hacking, a term possibly coined by the good folks at biggerpockets is considered a fast track to starting a real estate investment strategy. Simply stated it is the purchase of an owner occupied multi-unit where the owner will be in charge of the management of the property. The house hacking model was definitely what my wife and I had in mind in the late 1990’s. Choosing to invest in an owner occupied property when you are relatively young (we were in our early 30’s) has a few financial rewards we were not aware of at the time of purchase.
We simply bought a fixer upper duplex at an extremely low price and new the cosmetic deficiencies could be overcome ( picture 70’s shag rug in the kitchen). While most people ran screaming, we saw the ‘bones’ and square footage of the property (4000 sq ft) and the return on investment (we would no longer need to pay for our housing right from the get-go while rented) and new we could live happily in the property. This first experience was rewarding to the point were we invested in other properties and it inspired this blog! To thrive in this type of real estate investment strategy you need a bag full of skills (social, maintenance and financial), the time commitment it requires and the temper mint to deal with occasional crises management (less then half a dozen times for us, knock on wood).
The financial upside for properly managing investment property include:
Freeing up funds that would normally be used to pay for housing. Smart investors save these funds to re-invest and establish a cash reserve.
A credit rating that can open doors to loans that would otherwise not be possible. I have little to know problems securing a business loan.
A financial net to fall on in the event of layoffs at your ‘day job’.
The ability to choose good debt over bad debt. In my opinion good debt equals a return on invested money or a tax break (Like investment property) while having the ability to pay cash for things like cars and appliances wipes out bad debt.
Equity down the road, used as leverage for further investment or for profit when you sell the property.
I recently saw a commercial on TV that depicted a homeowner shackled to his mortgage while renters bounced and danced free of this burden. The analogy struck me as an upside down view of reality. In my view renters are shackled by the burden of paying a large percentage of their income to a debt that will never have a payoff, other than having a roof over their heads. If you have the skills to manage an owner occupied investment property, I say house hack away!