Introduction to House Hacking - Leverage your asset with creative rental solutions

HOUSE HACKING - If you're considering purchasing a home, especially for the first time, you are likely concerned with the monthly mortgage payment and how you're going to cover it. Considering that appreciation rates and home values skyrocketed during the pandemic, this concern is widely shared. You may have heard that many home owners have turned to house hacking as a means to offset their monthly payment. Simply put, House Hacking  is a real estate investment strategy aiming to offset the owner’s mortgage payment.

Before we dive into the many options available to house hackers, Owner Occupied is a term to get familiar with. Owner Occupied is a term used in real estate investment circles to indicate that there is space available for rental income, but the owner is also in primary residence there. 

In this blog we will cover a few of the most popular approaches to house hacking, and some pros and cons of those approaches. I've also provided some links to local resources related to downpayment assistance, house hacking and home purchasing. 

Popular Types of House Hacking Rental Income To Consider: 

1. Short Term Rental (STR) - Perhaps the most lucrative and popular with the house hacking movement, STRS are furnished rentals available for short term stays of as little as one day/night. They are frequently associated with AirBnB, or VRBO. An STR could be a unit in a duplex, triplex or fourplex, an extra bedroom in your home, an ADU (Additional Dwelling Unit), or a finished basement with it's own amenities - kitchenette, bathroom and separate entrance. These are the most work intensive types of rentals because stays turn over very frequently. Renting the unit will likely require daily cleaning & housekeeping, administration and marketing tasks on a daily basis. Also, STRs are heavily monitired by local governments and usually require permitting to operate. Do your due diligence on this point, because the local rules and fees to get permitted can vary widely. Income from STRs is not allowable when applying for a mortgage. 

2. Mid-Term Rental (MTR) - Mid-Term Rental income can be maximized by offering a furnished rental with a minimum rental requirement of 30 days. MTRS frequently require no permitting. MTRs can be a good choice if a home owner would like to see more income than an LTR, but doesn't want the daily grind or permitting obstacles that an STR would require. MTRs can be promoted on sites like Furnished Finder, VRBO & AirBnB. Tenants might be folks between homes, or traveling professionals, i.e. traveling nurses, sales people, etc. The downside here is that the income isn't guaranteed, admin and marketing are never ending, and, like STRs, the income cannot be counted when applying for a mortgage. 

3. Long Term Rental (LTR) - Long Term Rentals are the sensible shoes of rental offerings, typically an ADU with it's own address, duplex, triplex or fourplex. Rental rates are in line with local rentals with similiar attributes. The least profitable, but the most reliable source of rental income is an LTR. They guarantee rental income with a traditional rental agreement or lease contract for an agreed upon term. A huge upside for some home buyers concerned with qualifying for a mortgage is that the potential income can be counted, before the purchase, to qualify towards a mortgage. LTRs are usually unfurnished, and landlords are subject to all applicable local and federal housing laws. Again, do your due diligence as to what that entails on the local, county, state, and federal levels. 

4. RV/Tiny Home Pad Rental - The popularity of the Tiny Home movement has led to the need for parking spaces with hookups beyond the traditional trailer or RV park. RV/TH Pad rentals can be daily, weekly, monthly or leased for longer periods. The nice thing about renting an RV/TH pad is that it's relatively low maintenance for the property owner once it's established, and the cash outlay to bring it to market is also relatively low. If you're unsure about how to go about making your RV pad rentable, there are low cost consultants available as resources. In Portland, there's a company called Tiny Hookups  that will consult with property owners as to what amenities would need to be installed to accomodate a Tiny Home or RV rental pad for legal rental. In a nutshell, an electrical outlet rated at 30 or 50 amps, a potable water supply (can be an outdoor water faucet connected to an RV hose), and an RV style sewer hookup will get the ball rolling. As with the previous types of rentals, your RV pad can be made available online through websites such as Tiny House Listings. Do your due diligence by perusing local classifieds and RV/TH living social media to find out what to charge for rent. 

Labor & Property Management : Some house hackers employ property managers to manage their rentals. If you're interested in utilizing their services, they can save a home owner a lot of time and energy because not only do they manage the day to day administration and maintainence of the rentals, they also ensure that the home owner is in compliance with local, county, state and federal rental laws. Rates will vary, but a tyrpical property management company fee is usually around 10% of the income of the rental. 

Summary

• Owner Occupied single-family homes, multi-family homes (duplex, triplex, fourplex, ADU) and properties with RV Pads are good candidates for house hacking utilizing STR (Short Term Rental), MTR (Mid Term Rental), LTR (Long Term Rental), & RV/Tiny Home Pad rental strategies.
• Current or potential income/rent rolls from rentals of owner occupied LTR properties may be considered  as additional income for the borrower when applying for a mortgage. 
• Financing an owner occupied rental property requires less money upfront than a stand alone investment property to be used as a rental, and opens the doors to more financing options such as FHA loans which feature better terms & interest rates than DSCR (Debt Service Coverage Ratio) or Hard Money loans for real estate investments. First time buyers of owner occupied rentals can benefit from downpayment assistance programs and government backed loan products such as the FHA loan, further offsetting costs. (See Portland community resources below)
• Utilizing a property management company can relieve some of the daily administration, maintenance and compliance burdens from the house hacker. 

Check out these local community resources that offer access to information about down payment assistance programs, IDA (Individual Development Accounts), local agents, lenders and others who provide various house hacking & real estate related services. Some of these organizations offer home buyer counseling services to help people focus on their goals and provide options that best suit them. 

• Portland Housing Authority - https://portlandha.org/
• Home Forward - https://www.homeforward.org/
• Portland Housing Center - https://portlandhousingcenter.org/
• Mult. Co - https://www.multco.us/dd/affordablesubsidized-housing-resources
• Tiny Hookups: https://www.tinyhookups.com/
• Tiny House Listings: https://tinyhouselistings.com/
• Rental Housing Alliance: Rental Housing Alliance

Sam Densmore/Realtor/Inhabit Real Estate 08/14/24/All Rights Reserved