5 amazing house hacking methods

I'm going to give you a step-by-step guide to house hacking. I'll also tell you why this is the greatest method to invest in real estate since it allows you to get started with almost nothing down. So, let's jump into it. Here are a couple reasons why house-hacking can be so beneficial:

• You can build equity in your primary residence, then use that equity to replicate your house hack again, and again, and again!
• You can get started without a lot of money -- maybe even none!
• It allows you to live for free (or pretty darn close!)

For example, my wife and I house-hacked our way into the real estate business.  We lived in our first house for free, using the rent paid by our tenant, then used our savings to purchase our second and third house hacks. We have a growing portfolio of rentals that we pay nothing to own, and it all started from this incredible strategy.

Not bad, huh? There's truly no better way to get started than this!

Acquiring your first house-hack

Step 1: Getting Pre-approved

Your first step will be getting pre-approved for the right loan. But not just any loan. One reason house hacking is so awesome is it gives you the ability to invest into a property with a very low down payment.

With a traditional investment property, you'd likely need at least 25% down. Let's assume you want to buy a four-plex as an investment property; in this case, if it's $400,000, you'll have to put down $100,000. That's a lot for someone just starting!

But with house hacking, you can invest in a property for as little as 3%-7% down. So, again, if your four-plex is $400,000, you can put down $12,000-$28,000 to purchase it!

That's what we call leverage.

A good lender will let you know how much money they may loan on a property. Typically, larger banks will offer you the best rate and most options. If you already know a lender, then go for it. If not, here are some resources to help you get started:

• BiggerPockets Lending Library - This is an awesome resource to connect with lenders .
• Mortgage calculators - Use these to help you estimate your payment and see what you can afford

Now it's time to apply for a loan. Once they run your credit, the lender will tell you how much of a loan they are willing to give you on a property. Typically, if you have good credit (a score of around 720 or higher) and a stable income, you'll be able to get a loan for around 90% of the property value. This means that if the property is listed at $100k, as long as your numbers support it, you may be able to purchase the property for $10,000 + closing costs. Just remember, your lender will likely require 6 months of mortgage payments in reserves, so you'll have to have that saved up.

Now that you've found a property and pre-qualified for the right loan amount, it's time to start house hacking!

With house hacking, you will typically purchase the home via a traditional mortgage. The exceptions to this are if you use an FHA loan. If this is your first time purchasing real estate or you don't have much money saved for a down payment, getting into an FHA loan is your best bet. They are essentially guaranteed by the government, so they are incredibly safe. You can get in with just 3.5% down. You're not just limited to one type of investment property either! Many lenders let you combine several loans into one package to buy duplexes, triplexes or four-plexes.

Step 2: Find an Investor-friendly agent

Finding a great real estate agent is not easy, but a great agent will make all the difference on your investment journey. You'll need an agent that understands your goals and is willing to take the time to find the right investment for you.  Here are some qualities to look for in an agent

• An Investor-friendly agent will not pressure you into making a decision. They'll take the time to learn about your goals, motivations, resources and limitations so they can provide you with real information vs. fluff. This will help you make better decisions because you have accurate data on  the pros and cons of each property.
• Successful real estate investors do it themselves, don't get sold on the first piece of property that comes their way. They research, plan, execute, track data and refine their strategy until they find what works for them.
• Great real estate agents understand that you'll likely be doing your own research, and they won't mind letting you go on some fact-finding missions. Instead, they'll take the time to explain things about certain properties and neighborhoods so you can make a more informed decision.

And lastly, an Investor-friendly agent will save you time by finding properties in  your target areas, eliminating properties that are not good investment opportunities and keeping you updated on the market.

Step 3: Getting your foot in the door

This step is all about finding the right property. Here are four tips for finding your  first house hack:

1. Always make sure the numbers work!  What I mean by this is, your monthly income should be able to support your payment and possibly leave some extra for other expenses like property taxes and insurance each month. If you're not making enough money to cover the cost of the house hack plus all of your other bills,  it will be tough to keep up. I'll give you an example of how this works below.
2. Don't jump at the first opportunity. When my wife and I went looking for our first house hack, we found one that checked all the boxes. But that property would end up being the least feasible of the 20 or so homes we would end up touring. Good thing we kept looking! Instead, through a more diligent searching process, we found the BEST deal. I made a small down payment and we started our journey as house hackers!
3. Save up for closing costs. Most properties will require you to pay around 3% - 5% towards the closing costs at the time of purchase. That means if you're buying a $100,000 property, plan on spending around $3,000-$5,000 for this expense.
4. Make sure this property still works out as an investment property. At some point, you'll move on to your next property. Be sure that you're still meeting your numbers once you leave, and make sure to account for a property manager if necessary.

Step 4: Getting your foot in the door

Once you've found the perfect property, it's time to work out the right deal. Here are seven tips to help you get started:

1. Understand the seller's motivation.  Before you can determine your offer, you need to understand why the seller is selling. Is it simply a matter of wanting more money? Or are they being forced to sell by circumstances beyond their control, such as a relocation due to a new job or a divorce? And if the latter is true, how flexible will they be on price? Understanding their motivation will help you to craft the right offer.
2. Don't let emotions cloud your judgement .  It's hard to be objective when you find "the one", but it's essential that you maintain a cool head during negotiations. Your offer should be guided by the numbers. If the numbers don't pencil out, be comfortable walking away.
3. Have a bottom line. This is the absolute maximum you are willing to pay for the property.  Stick to it!

5 Types of Super-charged house-hacks

If you are putting an offer in on a house, you've likely already given this considerable thought, but now that you have your property, it's time to subsidize your mortgage with additional rental income. Here are some of our favorite house-hacks:

1. Traditional House-hack. This is when you buy a two- or four-unit property and rent the remaining units to cover or come close to covering your entire mortgage.
2. Creative Layouts. You can easily utilize unneeded space or transform your living room into a nighttime sleeper with a little planning. This option is particularly useful in higher-cost areas.
3. Renting by the room. In many large single-family residences, individual rooms may be rented out as separate units. These could either be long-term or short-term leases. This is a fantastic opportunity for college students or young professionals seeking to live near campus. This is an excellent option for high-cost areas since your overall rental income will
4. Trailers. For the ultimate hustler, we have the on-site trailer. Many can be found for 15k or less, while your home can be rented out to tenants.
5. Super-charged House Hack. Consider the advantages of purchasing a home with an extra dwelling unit, or the potential for one. In certain cities, these are authorized dwelling units known as ADUs, DADUs, and JADUs. There are many other names for these rooms, but they all have the same goal in mind: to increase your rental income, and boost your homes equity.

Whatever you choose to do Make sure the future you will be as comfortable in your living situation as the current you. When you have a partner or family, sharing your space with others might be difficult for the wrong sort of person.

In Summary

House-hacking is a great way to kick-start your real estate investing journey. Over the years, it's become a popular strategy for achieving financial independence because of the low barrier to entry. Once you've done your first deal, you'll be able to replicate  it and find your second, third, and so on.

There are hundreds of strategies out there that will get you to where you want to go. But don't feel overwhelmed by it all; start with house-hacking and see how far it takes you!