Summary: Are you wanting to get started in real estate investing but don’t have the funds to get started? Maybe you have student debt so it just doesn’t seem like the right time? If that’s you, you might want to consider house hacking to jump-start your real estate portfolio. Not only does house hacking give you a way to buy a property with little or no money down, it also allows you to live rent-free. And if you REALLY know what you’re doing, you can even generate a significant amount of rental income! 

[Disclaimer: We are not accountants, lawyers, or financial advisors, so please consult your own team of professionals about the topics covered in this article.]

Many healthcare professionals think they “can’t” invest in real estate because of their high levels of student debt or because they don’t have the funds to get started. 

Despite what you might have been led to believe, there is a way to start investing in real estate without putting down large sums of money: house hacking.

In this article, we’ll discuss what you need to know about house hacking. Before we dive in, here are the key takeaways from our article:

• House hacking is a great way to get started with real estate investing because you can buy the property with little money down.
• You can pay as little as 0% or 3.5% on the loan you get, depending on the type of loan.
• Because the tenants are paying rent, you can live in the house for free – the mortgage is paid from the rent.
• You can not only live rent-free, but you can also generate income if you learn how to buy and manage rental properties 
• You can significantly boost the income even more by operating a short-term rental, either by renting out the other unit, in the case of a duplex, or even a spare bedroom in your unit. This will also teach you another valuable set of business skills that you can apply to future investments. 
• You can learn about property management by getting hands-on experience when you house hack.

What is house hacking?

House hacking is renting out part of a property, either a bedroom or a separate living unit (in the case of a multifamily property), while also living there. By renting out part of your property, you can cover some or all of the mortgage with the rent you receive. 

This is not a new strategy. People have been doing this “accidentally” for a long time. For example, college students have used this strategy to defray the costs of housing by renting out bedrooms to their friends. What may be newer is using this strategy intentionally as a way to get started in real estate investing in a low-cost, low-risk way. 

House hacking can come in many forms. It’s not just about renting out an additional unit or a bedroom in your house. You can also rent out a mother-in-law unit above a garage. Some people even add accessory dwelling units or tiny homes to their properties and rent them out. 

Not only is house hacking a way to live rent-free, but if you get creative, you can use your home to generate significant income. One way to do this is to buy the right property. By doing your cash-on-cash analysis up front, you can select properties that cashflow from the outset. 

[Want to easily & effectively analyze the profitability of a potential investment property? Try our FREE cash-on-cash calculator, don’t put in an offer without it!]

Another way to significantly boost your income is to furnish your unit and rent it out as a mid-term rental or short-term rental.

For example, we have one member of our community who bought a duplex. She and her husband live on one side and rent out the other side to a long-term tenant. To further boost their income, they rent out one bedroom in their unit on Airbnb. So they not only live rent-free, but they also make an income. 

We also have another member of our community who bought a fourplex. She lives in one unit and rents out the other three units as a furnished mid-term rental to healthcare professionals. 

What are the benefits of house hacking?

Besides being able to live rent-free and potentially generating additional income as described above, house hacking comes with even more benefits:

• You can ease into rental property investing: Buying a property and renting it out comes with a steep learning curve, so the task can seem daunting and challenging for many. With house hacking, you can ease into it because you live in close proximity to your tenants!
• Up-level your property management skills: While property management experience isn’t a prerequisite for investing in rental properties, this experience can help you become better at managing property managers because you’ve been in the trenches and you know what property managers have to deal with day-to-day. The skills you learn from house hacking will provide you with the invaluable skills you need to manage properties in a growing portfolio. 
• You can buy properties with a lower down payment: We’ll discuss financing in more detail below but in brief, house hacking gives you a way to buy a property with a lower down payment. Typically investment properties require 25% down. With house hacking, it’s possible to buy a property with as little as 3.5% and in some cases, even zero down. Imagine buying a new home once a year. This is a great way to grow your portfolio with very little of your own money.
• You can mitigate risk: House hacking is a way for you to mitigate the risks of real estate investing. The reason is, you’re getting the benefits of real estate investing in your primary home. Either way, you need a place to live so any rental income you get from your property is a bonus. If you’re able to cover all of your expenses, that’s even better. If you’re able to generate additional income, well, you decide how good that is!

Financing Options

With house hacking, you have access to a number of low-money-down financing options. The main reason is that you’re living in the property, also known as an owner-occupied loan. The rationale is that since you’re living in the property, there’s lower risk and therefore, lenders are willing to let you put less money down. Let’s have a look at these loan options below.

FHA Loans

Federal Housing Administration loans (FHA) were created to help low-income and moderate-income families to buy homes. 

With an FHA loan, you can borrow a maximum of 96.5% of the value of the home or property if you have a credit score of a minimum of 580. Even with a credit score of 500 to 579, you will only need to give a 10% down payment to apply for an FHA loan.

Doctor Loans 

Doctor Loans are another option for house hacking. These are commercial loan products that are specifically created for doctors and other professionals.  What’s unique about these loans is that you’re able to borrow money even if you have a large amount of student debt. You can also buy properties with little money down. In some cases, you might even be able to get a 0% down loan!

House hacking stories from our community

If you want to hear more stories about house hacking, start by checking out our own house-hacking story. 

Another great story is from Dr. Ayush Gupta. He was a student in our Zero to Freedom course who started his real estate investment journey with a house hack.

We also featured a great story of house hacking from Mania Kupershtok at our recent Fast FIRE to Freedom Summit. She is the one who bought a duplex, rented one side out to a long-term renter, and rented a bedroom in her unit on Airbnb.

If you want to hear other stories and meet members of our community, be sure to join one of our Facebook communities (links below!)

Want to learn how to creatively fund your real estate portfolio and achieve financial freedom? Join the conversation! Follow our Semi-Retired MD Facebook page and join our Physicians (for MDs or DOs only) or Professionals group! 

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