House hacking is one of the most powerful real estate investment tools available for building wealth. It's gaining momentum as more and more people embrace the FIRE mentality (Financial Independence Retire Early).
But you don't have to be a FIRE convert to realize the benefits of offsetting your mortgage by having someone else pay some or all of your mortgage.
While it's not for everyone, it is something to consider as you're starting the homebuying process in Denver or Colorado Springs.
WHAT IS HOUSE HACKING?
House hacking is buying a property, living it in one portion of it and renting the rest of it to offset your mortgage (or even cash flow).
TOP HOUSE HACKING TECHNIQUES
Rent by the room
This is the easiest model to get into, but it also requires the most personal flexibility. You buy a single-family detached home, live in one bedroom and rent the remaining rooms.
In Denver, you're looking at around $700-$800/room. (More or less depending on the neighborhood.) In Colorado Springs, you're seeing slightly lower room rental rates.
In hot markets with high rents like Denver and Colorado Springs, there is a strong market for those wanting to rent a room to save some cash.
Airbnb a separate space
If you're looking for a little more privacy, finding a home with a lock-off basement or even a full-on basement apartment is the way to go. (And we have searches designed to find these properties.)
Live upstairs and then rent the downstairs. How you rent the downstairs is up to you. We like short-term rentals or Airbnb, especially if you're in a popular area, because the returns are pretty good. (We've seen between $1,000 and $2,000 across the Denver metro area for basement units -- some of them with a kitchen, some without.)
Buy a multi-unit
This is the original house hacking model. Buy a duplex or triplex, live in one unit and rent the other(s). This is great ... if you can find a property.
These units seem to fall into one of two categories. A) They're nice and really pricey, so much so it doesn't seem to make financial sense to buy if you're looking to make some passive income. Or B) They're not nice and either you have to be open to a less-than-stellar space or you are competing against institutional investors who will pay cash to pick this up in a heartbeat.
It's a little easier to find a moderately priced duplex in Colorado Springs than it is in Denver, but in both markets, it's a tough road to go down as you're competing with cash buyers and experienced investors. That's not to say it can't be done; just be prepared to be patient.
HOW MUCH MONEY CAN I MAKE HOUSE HACKING?
As with so much in Denver and Colorado Springs real estate, the answer is ... it depends.
Are you renting by the room or a basement apartment? Are you long-term renting or short-term renting? Is the space furnished or not? Does a tenant have their own bathroom? How big is the room or unit?
Depending on how you answer all these questions, you could have some of your mortgage paid or all of it paid plus some cash flow.
OK, BUT FOR REAL: WHICH HAS THE BEST ROI?
The house hacking spectrum
Think about house hacking on a spectrum. On one side you have more privacy and less revenue. On the other side, you have less privacy but more revenue.
The highest-revenue house hacking model is renting by the rooms. The money's great, but then you have two, three, maybe four roommates. If you like other humans, then this might work out. If you don't, it might not be for you.
(See this deal diary by some clients of ours who are crushing it renting by the room.)
The highest-privacy model is either a duplex where you rent the other side or a home with a basement apartment that you rent out with a separate entrance.
Be honest about your goals
You need to have a serious conversation with yourself and your partner about who you and what your priorities are. Maybe generating the most cash flow out of your house-hack is the biggest goal, and you're willing to sacrifice for a few years, then find yourself a 5br house and rent out the other four bedrooms.
But not everyone is like that. It's okay to give equal weight to other priorities, like quality of life. Maybe that's when you start to look for a home with a mother-in-law suite in the basement. You'll still offset your mortgage by a lot, but will also retain some sanity.
This is particularly important conversation to have when you have a partner. Often, the dude's excited for the money, and the girlfriend or wife -- while interested in the rent money -- also wants a nice home and some privacy.
BENEFITS OF HOUSE HACKING
By renting out the remaining portion of your living space, you are having other people pay your mortgage. In a best-case scenario, you might even cash flow a bit (i.e. live for free and get a little extra cash at the end of the month).
An intro to real estate investing
House hacking is a great intro into being a landlord. You handle leases, deposits, and the emotions of tenants. All right inside your own home. You can take this experience on to your next investment property.
You can rent the space when you want and then stop when you don't. If you need to move to another city, you just rent out your space and now you've got a full-on investment property in Denver or Colorado Springs.
BIGGEST HOUSE HACKING MISTAKES
Not doing your due diligence
You are either going to live upstairs or downstairs from a stranger. You better know what you're getting into. Run a background and credit check on all potential tenants. Just do it.
Now, this does not mean discriminate. The federal Fair Housing Act states that you cannot discriminate in housing based off race, color, national origin, religion, sex, familial status (including children under the age of 18 living with parents or legal custodians, pregnant women) and disability.
Not setting proper expectations
We believe in clear communication in all things -- be it with our clients, in our relationships and with potential new roommates/tenants. Spend some time thinking about how you live and what matters most in a
Not signing a lease
Not signing a lease is just dumb. Everyone enters a relationship with the best of intentions. The lease is your protection when the unforeseen happens. Without it, you could be stuck in a situation you will regret.
HOW TO GET STARTED HOUSE HACKING
Find the right real estate agent
Not all real estate agents are created equal. Find an agent in Denver and Colorado Springs who has worked with house hacking buyers. They're going to know rent numbers and what types of properties work and will be able to think creatively to help you meet your goals.
One of the great things about house hacking is that you use other people's money. You can buy a primary residence for as little as 3.5% down. But however you finance the deal, it's important to talk to a lender up front so you know what you qualify for and know of any issues that might arise while buying a house.
Education is good. Action is better. We see a lot of house hackers in Denver and Colorado Springs get stuck in analysis paralysis, thinking that if they just know one or two more things, they'll be ready to buy.
The truth is you'll never feel fully prepared. And you'll likely make a few mistakes. But the best learning is by doing.
There is no "best" way to house hack. It depends on your goals and your personal comfort with roommates. The point is that you can live almost rent free while letting other pay off your mortgage all while you get experience with real estate investing and build reserves to repeat the whole process.