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Why House Hack?
House hacking is a popular and exciting way to live rent free, or have others pay your mortgage! However, like any form of rental investing, house hacking could take some money upfront. Therefore, in this article we will dive into how to house hack with no money!
In short, to house hack with no money down, you have to consider having roommates, adjusting your home, renting out rooms, or purchasing a property with an alternative source of income.
In this article we’ll discuss choosing between a single family home and a multifamily property, funding options for house hacking, different house hacking options, and how to house hack with no money down!
Low Cost House Hacking Strategies
There are a few important questions you must ask yourself prior to purchasing a house hack or using your current home for house hacking. Let’s go through a few important topics:
Single Family Home or Multifamily House Hack?
One of the most popular ways to house hack is by purchasing a multifamily property (duplex, triplex, quadplex) and living in one unit while renting the remaining units.
However, this does require getting a loan, saving for a down payment, and doing extensive research for the purchase of the property.
Check out this article explaining the steps to find your first multifamily house hack!
If you are looking for ways to house hack with no money, then rest assured that there are other ways to “hack” your home to live rent or mortgage free!
There are many ways to house hack that do not involve buying a separate multifamily property. A few examples include:
- Renting out a bedroom
Teachers, college students, and international exchange students are great potential tenants to rent out a bedroom in your home. Family members are also potential roommates.
By renting out a bedroom/bathroom in your home, it would take very little maintenance, upkeep, and money to earn rent.
- Renting out an additional dwelling unit
If your current home or property has additional space, like a basement, garage, or attic, these units can typically be easily converted with little money to be rent-ready. These additional dwelling units can provide more privacy for you and your tenant.
Do You Need Money to House Hack?
Let’s quickly discuss why it is important to have at least some money set aside for your house hack!
Emergency Fund
There is always something that needs updated or fixed in a home. Whether it be that a refrigerator or other appliance stopped working or the furnace no longer produces heat, there seems to be a problem arising at least every few months.
Even if you choose to use your own, current property for your house hack, it is always recommended to have a separate emergency fund set aside.
An emergency fund is money that is solely set aside for emergencies! This can include anything from the expensive examples stated above, to other simpler fixes like a replacing a broken faucet.
Most money and rental investing gurus suggest having 3 to 6 months of rent/mortgage in an emergency fund set aside for emergencies, especially if you have a multifamily property house hack.
Sinking Fund
Having a sinking fund set aside is also a popular way to avoid going into the negative if you have a rental property.
A sinking fund is unlike an emergency fund in the way where it is money that is saved for expected expenses, compared to an emergency fund being strictly for emergencies.
Sinking funds for your house hack is money set aside for a handful of expenses like HOA fees, HVAC replacements, roofing, and other items you know that you’ll have to pay for in the future.
This is important because, since your mortgage will be lower, using your savings through your house hack can help you to pay for these emergent and expected expenses without dipping into your personal savings, taking out a loan, or going into debt.
Funding Options with No Income
There are multiple ways to fund the purchase of a rental property for house hacking!
Private Lenders
Private lenders are people who lend you money, with expectation for a return.
Private lenders are typically people whom you already know or have connections with. This can include family, friends, coworkers, or other acquaintances you’ve networked with.
To get private lending, it is critical to have a plan established, to pitch your idea to the private lender. This is important because you need to have trust between you and the other individual(s) to sell them on your exciting proposal of owning a house hack.
It is important to note that getting a private lender for a rental property, especially as a brand new investor, is not common, and not easy. Also note that your family cannot loan you money for a home down payment!
Family Co-Signer
Although this is not a generally recommended option, you may have the opportunity to have a family member co-sign a loan in order to buy a home.
Doing this may require you to do extensive research and learning upfront to sell the idea of house hacking to your family member!
FHA or VA Loan
If you are a first time homebuyer or a veteran, you can qualify for a lower down payment minimum! This is popular to use for people buying a multifamily property, to house hack by living in one unit of the property.
The FHA loan has a down payment minimum of 3.5%. This is the same for if you choose to purchase a single family home or a multifamily property (duplex, triplex, or quadplex). The VA loan is a 0% down loan that is backed by the government. Learn more about your eligibility for a VA loan here!
Note that many bank lenders prefer around 2 years of work/income history to justify that you can pay back the loan. You may have more luck with smaller banks and credit unions.
Rural Housing Urban Development
This loan is a great way to buy a house hack with no money down. The HUD loan is an FHA home loan that is backed by the U.S. Department of Housing and Urban Development.
This allows you to buy a property with 0% down, but it must be in an area that is considered “rural”.
However, it is very important to consider your plan for your house hack using the HUD loan! Different areas and towns may not have big rental needs, or some may not have many multifamily properties.
BRRRR Method
The BRRRR Method is a strategy used by many rental investors to invest with no or low money invested!
The basis of this strategy is to buy a fixer-upper home, make improvements, receive profits from a refinance, and then use those profits to purchase a new property.
The key part that makes a BRRRR is that you can refinance your mortgage and get money out of a property in order to purchase a house hack for free or low money down!
Let’s briefly explore how the BRRRR method works:
BUY
First, review your DealCheck app to look at properties that are priced below market value. This part is important for the “refinance” portion of this method.
Then, look at options for financing, as mentioned above! Many people get a loan at first, but there are other funding options as well.
REHAB
Following the purchase of your rental property, you’ll need to make some fixes to be able to get a good profit when you refinance. The homes you look for will need some fixes, but a few thousand dollars into the property will go a long way when you refinance!
RENT
You can either find tenants on your own or simply use a rental management company! It typically depends on how much extra time you have, and how much experience you have with home renovations!
Check out this detailed article to learn about the benefits of having rental managers!
REFINANCE
After approximately 6 months to 1 year, you’ll be ready to refinance! You’ll have the house appraised again and go through the refinancing process and the goal is to earn enough cash to have a downpayment for your next property purchase.
REPEAT
This step is as simple as it sounds – repeat the process! The BRRRR method isn’t super quick, but it can work. Plus, realistically, you can’t expect to buy tons of properties each year. This method allows you to only put in money at first, and be able to use profits to buy additional rentals!
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5 Ways to House Hack With No Money
- Rent out rooms in your current property
This method does not require you to purchase a property, and it gives your firsthand landlord and tenant experience!
- Rent out your home (while living in one room)
The way this works is to only live in one room or living area while the other individuals live in the rest of the house. Although this can be difficult for some time and can be an adjustment, living this way could allow you to live for free!
- Renovate ADU’s
Doing a quick renovation of an attic, basement, or garage would be an inexpensive way to house hack by renting out your home/bedrooms and have additional privacy!
- Rent out storage
Do you have a large garage or additional shed? Consider renting out this space as storage and reduce your mortgage costs without having roommates!
- Airbnb or Vrbo
If you live in a college town, a popular city, or near stadiums, for example, renting out rooms for short-term rentals is a great option to house hack! This gives you experience with being a landlord without the additional hassle of buying a separate rental property.
Summary
There are many ways to buy and rent out homes to reduce your living costs.
If you were in search of finding ways to house hack with no money, then there are a handful of ways to achieve this! Consider renting out rooms, renovating an ADU, or even Airbnb! There are also ways to purchase a single-family or multifamily unit with very low (or no) money down.
Be sure to check out this free course about rental investing to learn everything you need to know about real estate investing and house hacking!
