House-hacking? Avoid These 5 Mistakes

General advice

DEC 27, 2022

It's no secret that house-hacking is one of the strongest and most popular ways for new investors to get into the real estate game, as it's not just a great way to invest in real estate but also as a means to accelerate your wealth growth.

That being said, often times, most new house-hackers will get carried away with their newfound ambition to invest. Below are the top 5 mistakes we see people make: 

Buying the nicest house

Often times, new house-hackers are also first time homebuyers that have a tendency to lean towards newly built (or renovated) homes. Be mindful of buying the nicest house on the block because that would leave little to no room for you to add-value into the property through remodeling, or rent raises. Unless you're ok with how the numbers play out for your investment goals, most 'modern' homes aren't the best investments for house-hacking returns.

Having unclear goals

This might sound like very easy mistake to avoid, but most people will still fall for it. House-hacking is exciting, and it's easy to get carried away with your remodeling goals, investment targets, and even long term strategy. Failing to plan, means you're definitely planning to fail with house-hacking. It helps to keep an idea of what you're wanting out of your purchase in order to set the tone for future management decisions. For example, if your end goal is property price appreciation (not cashflow), then you're going to probably want to spend a few extra dollars to get the top-of-the-line appliances/roof/etc. when it's time to replace them.

Using an investment (or conventional) loan

The beauty of a house-hack, is that it's your primary residence — and anything that's 4-units or under, still classifies as a residential property. Since your multifamily property will classify as a residential property, you can qualify for low down-payment residential loan programs such as the FHA or VA loan programs. An added benefit of low down-payment programs is that the rate is often slightly lower when compared to other loan products. You could argue that the lower down-payment would mean your monthly mortgage is higher, but the amount of cash saved can be used to add more value to the property and increase your equity faster.

Living in the nicer unit

Yes, we also agree that you work very hard and deserve the nicer things in life. Chances are though, that if you're buying a multifamily property to house-hack in, one of the units isn't going to be as nice as the others. That's the unit you should be living in because you would otherwise have to rent it out at a lower-than-market rental amount. Living in the unit also allows you to add-value through remodeling, painting, etc. without having to disturb your tenants.

Not working with the right people

Having an agent, and lender, by your side that have also worked with other investors or even invest themselves makes a huge difference. As a new house-hacker, you might not have the network of handymen, contractors, etc. ready to go whenever you're making your investment decisions — so it helps to outsource the questions to those that have done it before. On top of that, an agent that also invests and house-hacks will be able to better help you crunch your numbers and understand what you're looking for.

This content is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice.


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