How To House Hack And Live Rent Free If you are starting out in your career and are happy to live with housemates, it is possible to live rent free. Here's how to do it.
By Samuel Leeds
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I recently helped one of my employees become financially free via property. Part of doing that was helping her to find properties which she can share and live in for free, i.e. house hacking. The idea of house hacking is simple; if you can buy or rent a property with more bedrooms than you need, you can rent the extra rooms and cover your rent or mortgage. Doing this could mean that you are able to live in a nicer area than you otherwise would, or it could simply be a way to reduce your living expenses. Either way it means you can live in a property rent free.
As a multimillionaire property investor that started with nothing, I know how important it is to keep your costs low at the beginning of your career so that you can invest and grow your wealth. If you are okay with living with housemates this strategy may be for you. In this article, we will look at various ways to implement the house hacking strategy as well as the risks and challenges that come along with being a house hacker. Although house hacking isn't for everyone, it certainly is a great way to save money for many young professionals.
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House Hacking: Renting
Suppose you want to save money on rent. You could rent a room in a shared house in a less affluent neighborhood. You would still be paying out each month and it wouldn't be the best place to live either. But what if you could live in the nicest part of town, the type of area that everyone wants to live in? Suppose you could live in such an amazing area with zero rent bill? But how is that possible? The answer is house hacking.
First off, you rent an apartment in the nicest part of town where rent per room is high. Maybe you rent a 3 bed apartment for example. You negotiate a good rent with the landlord and get their agreement that you can rent the other 2 rooms out. Because the area is so popular, it is possible to rent the 2 remaining rooms out for a price that covers the whole rent. This makes the apartment essentially free to you. Of course, the tricky bit is negotiating the ability to do this with the landlord. You will need to show that you will be an excellent tenant and are a working professional. You will also probably not find a landlord willing to do this immediately. You need to keep trying until you find a landlord who is okay with this arrangement.
House Hacking: Buying
You can buy a residential property where you intend to live in the UK with up to a 95% mortgage if you are a first-time buyer. This means as long as you qualify, the main hurdle isn't the deposit. You just need to find a way to cover the mortgage payments and other upkeep. The first thing to consider is getting an "interest only' mortgage. This means that you only pay down the interest not the principle. This will reduce your payments considerably. But what if you want to reduce your mortgage payments to zero? That's where house hacking comes in again.
Suppose you buy a 3 bedroom house with large rooms and the ability to turn the sitting room into a bedroom. You can then rent out 3 rooms and keep one for yourself. If you do this right, you should be able to cover the mortgage and some or all of the upkeep of the property as well. This means you are essentially living rent free in the property. You will need to do extensive research into the local market, as this will not work for every property. Find areas with high demand for rooms and where property is cheap relative to rents.
Related: 5 Steps to Buying Your First U.K. Investment Property
Risks and Challenges
Of course, doing all this comes with a number of risks and challenges which you should consider before taking action. Firstly, you will be responsible for finding tenants. If you can't find any or find bad ones that cause problems, that is on you. You will need to consider void periods when the rooms are empty in your calculations. Make sure to keep some money aside for unexpected periods when you will need to make the payments yourself.
It also may be difficult to secure a property to rent if your income would indicate you would be unable to afford to rent it out on your own. This might mean you need to bring on a guarantor. If you are buying a property, you will need to be able to afford the mortgage repayments based on your income. Use a whole of market mortgage broker, rather than your bank, to find all the deals available to you. This will increase the likelihood of you being offered a mortgage.
There are many challenges you will need to overcome if you want to become a house hacker. But there are plenty of rewards as well. If you are up to it, you could be living rent free. This path isn't for everyone, but for some it is an answer to their prayers and a chance to save for their future.
Related: Should You Buy Investment Property Now, or Wait for a Crash?
