There’s no way around it: Buying a house is expensive. In fact, the average cost for a home in Guelph is now over $770,000. As housing becomes increasingly less affordable, creative home buyers – first time buyers, especially – have adapted and are finding new ways to own a home without breaking the bank. This is where “House Hacking” comes into play. It is a real estate trend that’s growing out of necessity, since many people find themselves living in cities where they are simply priced out of home buying.

What Is House Hacking?

Simply put, House Hacking is a strategy that involves becoming a landlord and renting out portions of your primary residence to generate income. This income is used to offset the cost of your mortgage and other expenses associated with owning a home. When done correctly, it allows people to live in expensive areas completely for free, or even generate positive income through home ownership. However, just like everything else in life, House Hacking does come with a cost. In order to save on the financial side, homeowners must be willing to take on a little more work and sometimes sacrifice a some comforts in the process.

What type of property should I house hack?

You should talk to your Guelph real estate agent about this. There are a wide variety of property types you can use for house hacking. The most common is the duplex, where a house hacker rents one part and lives in the other. Less common opti

Triplexes

Spare bedrooms of a single family house (rent to roommates or to Airbnb guests)

Accessory Dwelling Units  of a single family house (ex: basement apartment, garage apartment, or small, on-site cottage)

Mobile home or RV rentals on a large lot of a single family house

Rent parking spaces in your driveway  justpark.com & see this article)

Pros & Cons of House Hacking:

Pros

Cash Flow

This is one of the main benefits of house hacking rental properties. The extra income accumulated each month after all expenses have been paid. You can use your cash flow either to pay down your mortgage or to invest in additional properties. Unlike our list on how to save money, cashflow provides you with extra money

Financing

House hacking can also help when is comes to obtaining a mortgage for a multi-unit building. This is because the property is seen as owner-occupied since you are living in one of the units.

“Landlording”

With house hacking, many first time home buyers and real estate investors can get valuable landlording experience with a relatively low amount of risk. This includes advertising your vacancy, tenant screening, tenant management, understanding rental agreements and contracts, dealing with unanticipated housing issues and repairs, negotiating with contractors, and bookkeeping.

Starting Point for New Real Estate Investors

Since you’ll be living in your property as your primary residence, all of the benefits of owner occupancy will be at your fingertips. House hacking is a great real estate investing strategy if you’re looking to take action immediately. Not only will you have a great pulse on your property, but you’ll also get a feel for everything it takes to expand your real estate portfolio down the line. After all, you won’t be able to occupy every real estate investment as a primary residence and get to learn through taking action.

Bonus points if you can get a house hack opportunity in an up and coming area. Not only will you gain on the house hack itself, but you benefit from neighbourhood gentrification. Read: Tim Hortons near me

Cons

You have to be a landlord

You don’t really have much of a choice. Whether you get roommates or rent out an entire unit, you have to act like a landlord. Not only do you have to act like a landlord but you need to be a legal landlord. Make sure you do some reading up on your local laws and make sure your lease agreement follows all laws. The Landlord and Tenant Board is a great resource for lease agreements and general information on landlord and tenant rights.

You live near or with your tenants

A typical landlord will not always live in the same area as their rental property. This creates some distance between them and their tenants. However, when house hacking, your tenants are simply a wall away. You may run into issues with a lack of privacy or never truly feeling “at home.”

You will likely have to give up part of your home

When house hacking, you will likely be required to give up a portion of your house. Whether you are renting out an extra room or have converted your basement into an apartment, these areas of your house will no longer be accessible to you.

It’s likely going to be a (more expensive) detached home

House hacking in a condo or townhouse where you share common walls with strangers isn’t really viable. In some cases, it’s not even permitted by a condo corporation or municipal by-law. Therefore, the best choice is a detached home, which, is also the most expensive type of home to buy.

Rental Strategies for house hacking

Offer Rooms In Your Home Available For Short-Term Rentals

Not sure you like the idea of committing to a long-term rental of any part of your current home? Then you can dip your toes in the water of real estate investing by offering up a spare room on a short-term rental platform like Airbnb or Vrbo. Women property owners interested in renting only to other women for safety reasons might be interested in Golightly, an invitation-only site that vets its gender-exclusive membership.

One thing to consider is that you’ve cleared any short-term rental laws and spoken to your mortgage broker. Lastly, ensure that you’re thoroughly familiar with the condo board rules before buying for short term rental. Many Condo Corporations prohibit both short term rentals and require minimum rental periods.

Is rental income on my own home taxable?

Yes. Like a rental property that you rent out and don’t live in, house hackers must report any rental real estate income on your annual taxes. However, since you live in the majority of the house as your primary residence, you won’t have to pay capital gains on the sale as long as you live there for more than one year. Speak to your accountant about specific legal write offs you can make to offset income generated through house hacking.

Get in touch with Beth and Ryan, Guelph Realtors to start your house hacking journey today!