Is House Hacking Worth it?
We are living through uncertain times and looking at the world differently than before. Our mission at Side by Side is to help you create financial freedom through real estate so you can weather any storm.
Whether you are renting or already paying a mortgage, housing costs can be your largest expense. Rents have and will continue to rise. House hacking has always been a great way to reduce your monthly expenses.
What if we told you there was a way to reduce or eliminate your housing payment completely?
WHAT IS HOUSE HACKING?
If you’re going to live somewhere, why not live somewhere that makes money? Renting out space while living on the property, also known as housing hacking, is not a new idea. Roommates, duplexes, mother-in-law suites have been around forever and are all considered different forms of house hacking.
When you house hack your tenants (or roommates) pay your mortgage by paying you rent. Depending on the purchase price and the amount of rent collected, some people can live completely free through house hacking. That’s right! With the right property, you can eliminate your mortgage payment.
Let’s look at some real life house-hacking examples:
IS HOUSE HACKING WORTH IT?
*PITI = Principal/Interest/Taxes/Insurance
**Utility payments are not included in the below amounts because in both examples you will need to pay them. With multi-family properties, tenants will typically cover the gas and electric bills for their unit.
HOUSE HACKING EXAMPLE #1:
Northeast Minneapolis Duplex vs Northeast Single-Family Home
Northeast Minneapolis is a very popular area with increasing prices and limited days on the market
NORTHEAST MINNEAPOLIS
SINGLE-FAMILY HOME
Average Purchase Price: $285,000
Down Payment (5%): $14,250
Monthly Payment (PITI): $1875
Estimated Private Mortgage Insurance: $235
Your Portion: $2110
NORTHEAST MINNEAPOLIS
DUPLEX
Average Purchase Price: $344,000
Down Payment (5%): $17,200
Monthly Payment (PITI): $2255
Estimated Private Mortgage Insurance: $285
Rent Collected (Average): $1700
Your Portion: $840
With this house hacking strategy, you will save $1270 a month and $15,240 annually.
HOUSE HACKING EXAMPLE #2:
West 7th Saint Paul Duplex vs. West 7th Saint Paul Single Family Home
WEST 7TH SAINT PAUL SINGLE-FAMILY HOME
Average Purchase Price: $222,000
Down Payment (5%): $11,000
Monthly Payment (PITI): $1535
Estimated Private Mortgage Insurance: $185/month
Your Portion: $1720
WEST 7TH SAINT PAUL DUPLEX
Average Purchase Price: $268,000
Down Payment (5%): $13,400
Monthly Payment (PITI): $1815
Estimated Private Mortgage Insurance: $220/month
Rent Collected (Average): $1500
Your Portion: $315
In a more affordable and up and coming neighborhood like West 7th St. Paul, house hacking will save you $1405 a month and $16,680 annually.
HOUSE HACKING EXAMPLE #3:
Northeast Minneapolis Duplex vs Northeast Single-Family Home
Are you planning to rent with some friends?What if you purchased a single-family home and rented the bedrooms out to them?*2019 Median Home Price in Ramsey and Hennepin County = $350,000*Assuming an average of $5000/yr in taxes
WITHOUT ROOMMATES
Purchase Price: $350,000
Down Payment (5%): $17,500
Monthly Payment (PITI): $2316
Estimated Private Mortgage Insurance: $290
Your Portion: $2606
HOUSE HACKING WITH ROOMMATES
Purchase Price: $350,000
Down Payment (5%): $17,500
Monthly Payment (PITI): $2316
Estimated Private Mortgage Insurance: $290
Rent Collected ($400/bedroom) = $1200
Your Portion: $1406
With this house hacking strategy, you will save $1200 a month and $14,400 annually.
IMAGINE WHAT YOU COULD DO WITH SAVINGS OF
$14,000-$16,000 ANNUALLY.
The best thing about house hacking is not only do you receive this savings for as long as you live in the property, but once you move out, you have a cash flowing rental property that you can keep or sell for profit.
