Home ownership has long been seen as a key part of the Australian dream. But with skyrocketing property prices, the combination of rising interest rates and tight lending standards, that dream is becoming increasingly out of reach for many people.
But for investors and homebuyers who are determined to get a foothold in the real estate investing market, you might want to start thinking outside the box because there are a few creative ways that may just get you there.
For example, there has been a new trend that has emerged among young Australians called “house hacking,” and it’s quickly becoming the go-to method for anyone wanting to gain entry into the real estate space.
And while this option has its own set of pros and cons, it provides a unique opportunity to live in a prime location without breaking the bank—so it’s something worth considering.
Here’s what you need to know about the rise of house hacking, how it works and how it can potentially even let you own a profitable Airbnb.
How To House Hack Your Way Through Real Estate Investing
Put simply, house hacking is a real estate investing strategy where you buy an investment property and then rent out rooms to tenants to cover the cost of your mortgage. It’s a strategy that has been used for years by savvy investors looking to make money from their property, but in recent years it has gained popularity among first-time home buyers who are looking for a way to reduce the financial burden of buying a home.
There are a few different ways that real estate investors can house hack.
One of the ways involves purchasing a duplex or triplex and living in one unit while renting out the others. Or you could rent out rooms in your primary residence on a short-term basis, such as through Airbnb.
What Are the Pros of House Hacking?
There are a number of advantages to house hacking, chief among them being that it helps you to get your foot on the property ladder. Other potential advantages include:
1. Generating Rental Real Estate Income
One of the great things about house hacking is that it can provide you with a great opportunity to generate extra income. By renting out part of your home, you can offset a significant portion of your monthly expenses. This can free up more money to save or invest, and it can also help you achieve your financial goals more quickly.
2. Split Utilities and Housing Expenses
If you’re clever about it, you can even split utilities and housing costs with your tenants, further reducing your cost and allowing you to save money. This might not work if you’re using an Airbnb house hacking strategy, but it could work if you’re privately renting out a room or unit.
3. Access To Tax Deductions
Another advantage of house hacking is that it allows you to take advantage of tax deductions that the Australian Tax Office (ATO) offers rental property owners. These deductions can help to offset the tax on your rental income, making it easier to place yourself in a positive cash flow position. These deductions can include interest on your mortgage, insurance premiums, and repairs and maintenance costs.
4. Faster Access to Equity
House hacking can also help you to build equity in your real estate more quickly. As your tenants make monthly payments, you will be able to pay down your mortgage balance, resulting in more equity in your rental property.
5. Become a Pro Landlord
If property investing is on the horizon for you, house hacking is a great way to get your feet wet. You’ll learn the ins and outs of being a landlord, such as how:
- advertise your property;
- find and vet potential tenants;
- organise rental agreements; and
- manage property finances.
Is There Any Downside to House Hacking?
Yes, with any investment strategy, you have to be willing to consider the potential disadvantages and how they would weigh up against the benefits. With house hacking, you need to consider the following downsides and risks:
1. Lack of Privacy
One potential downside is the lack of privacy that comes with living in a multifamily property. If you’re used to having your own place, it can be a bit of an adjustment to share walls (and sometimes even floors and ceilings) with your neighbours.
And even if you screen your tenants carefully, there’s always a risk that you may run into some trouble. If you’re not prepared to deal with difficult situations, house hacking may not be the right choice for you.
2. Financial Risk
As we mentioned earlier, the biggest benefit of house hacking is the ability to supplement your expenses with rental income and potentially even make a profit. But there is always the risk that things don’t always go according to plan. If a tenant leaves without notice or doesn’t pay rent on time, you could be left with a lot of out-of-pocket expenses.
3. Being a Landlord Can Be Time Consuming
Being a landlord can be a time-consuming job. You may have to deal with tenant complaints, repairs, and other issues on a regular basis. If you’re not prepared to handle these responsibilities, you could find yourself in over your head.
House Hacking by Renting Out Rooms on Airbnb
If you’re thinking of house hacking but are uncertain about the commitment of long-term rental tenants, you could consider using Airbnb instead. With Airbnb, you can rent out your extra space for short-term stays, which gives you a little bit more flexibility.
For example, you can choose exactly when you would like to rent your property out and fit that into your social schedule without it impacting your privacy too much. And because you’re using the Airbnb platform, you won’t have to worry about a tenant failing to pay on time as you would with traditional renting.
Another plus is that, often, if you live in a desirable holiday location or business district, you could charge significantly higher rates for shorter stays than you would with longer-term rental arrangements.
So, essentially, you’ll still benefit from the advantages of house hacking, but with fewer potential downsides.
It’s worth noting, though, that even if you decide to go the Airbnb route, there’s a lot of work that goes into maintaining a successful listing.
How Can GrowHOST Help?
If you’re thinking about house hacking through Airbnb, a property manager can be a big help, and
GrowHOST is the perfect partner for anyone looking to get into the space.
Not only do we offer a wide range of services to help you get your property up and running, but we also have a team of experienced professionals who can help you every step of the way.
From listing your property on Airbnb to managing guest communications and cleaning services, GrowHOST has everything you need to house hack your way to financial freedom. If you would like to know more about how we can help you generate more income, get in touch today.
Key Takeaways
House hacking can be a great way to enter the property market without having to break the bank. It’s important to do your research before taking on such a big responsibility, but if you’re up for it, house hacking could be the perfect solution for you.