House hacking as a first small step to property investing
A lot of people aspire to get into the property market, but obviously, it’s not easy. Otherwise, every Australian would be owning a rental home by now, given the great returns the property market offers.
One thing that hinders people is, first, the problem with housing affordability. Sydney and Melbourne are always on the top list of the most expensive cities in the world. If houses are not accessible in the first place, it puts aspiring investors in a disadvantaged position. Not everybody qualifies for a mortgage as well. Even with the government grants put in place, banks still require applicants to have big incomes to qualify for a mortgage. And even if they do qualify, it’s a matter of sacrificing other needs to afford mortgage repayments.
This is where creative solutions come in. Today, meet house hacking.
What is House Hacking
House hacking is a form of income generation in real estate by renting out your primary residence. This is perfect for people who are struggling to pay off their existing mortgage. In a sense, when you do house hacking, you live in your house at zero net costs. How? You let somebody else pay for it.
If done right, not only will house hacking free you from paying living costs, but it can also generate a positive cash flow for you.
How is house hacking normally done?
One way you can do this is by buying or building a duplex or a triplex. Of course, you take out a mortgage for it. Now, you rent out the first floor and you live in the same house on another floor.
It doesn’t even have to be an entire floor. If you have a spare bedroom and you rent it out, that is house hacking, too. Even your garage will do.
The challenge is in designing the house in a way that will allow privacy to all renters while still having access to all the important parts of the house.
The benefits of house hacking
Lowering finances
This is the most straightforward benefit you get from house hacking. Again, you can either lower your living costs or offset them completely using rental income.
Gaining wealth is a possible by-product, tho it’s a long shot. However, this can help you pay down your mortgage faster. This will, in turn, help you build up your house’s equity faster.
Gaining flexibility
You don’t have to live in the property you are renting out to actually consider it house hacking. In fact, if you can generate a positive cash flow out of it, you can consider somewhere rent is cheaper.
This offers great flexibility to people who like the nomad lifestyle. Or simply those whose work requires them to move multiple times.
Gaining knowledge in property management
House hacking makes you a landlord. It’s a great way to start if you plan to eventually go full-time renting out properties. You get a taste of what it’s like to establish an agreement, manage complaints, negotiate with tenants, and so on.
The downside to house hacking
Since the property you are renting out is considered owner-occupied, you cannot qualify for any tax deduction. Privacy can also be a concern especially because you will be sharing your own house with strangers.
Renting out your house is also a big responsibility. Of course, you should provide your tenants with the basics: security. You will shoulder the expenses of maintaining the house including repairs.
Finally, is house hacking legal?
Yes, you are allowed to rent out portions of your home in Australia. For more mortgage questions, don’t hesitate to contact our brokers. We will be glad to assist you with your concerns.