House Hacking Challenges

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As much as I love house hacking, there are portions of this strategy that make running this type of investment portfolio a challenge. While owning a house hacking portfolio, you are running a small business on a daily basis. Earning passive income has tons of perks but with those perks comes a few things that are worth sharing. Listed below are a few challenges, that dana and I have dealt with since starting this journey in October 2020. 

                  Challenges:

  1. Running a Business, while keeping your own full-time job 
  2. Screening Tenants
  3. Sacrificing Space to Build Wealth 
  1. You are Running a Business

As a house hacker, you are running a business so it’s important to plan ahead for unforeseen expenses. This means, running the numbers before you purchase an investment property is always important but with house hacking, it’s even more critical. For example, our original home insurance company dropped our coverage because our home is categorized as a historical home (Note: If your home is registered as a historic place, it could impact your insurance eligibility). This wasn’t an issue when we closed but mixed with a few other things like being a multi-family, having a Pitbull-Mastiff (Best Dog Ever!), and being close to water; it became one. Because we assessed the deal from a business perspective, we are able to absorb the cost while still, cash flowing. Understanding the numbers is crucial and having a nest egg for larger expenses like HVAC, Roof repairs, and Electrical issues are key. I will share my HVAC story at another time ☺.

  1. Screening Tenants

     As a new landlord, you want to ensure that you have tenants that pay their rent on time, regardless of any temporary laws. There is always a chance that a tenant won’t be able to pay for a lot of different reasons and the best way to minimize that risk, is through the selection process. Setting your criteria and ensuring you do not approve a tenant that does not meet your criteria is key. We use rentspree.com as our screening software because it provides a lot of detail like credit score, employment history, previous evictions, and a criminal background check. For example, three items we require to qualify a prospective tenant are a fully completed application, credit above 670-, and 3-month’s rent upfront. If you purchase a house hack with tenants in one of the units, complete an estoppel certificate before closing to ensure what’s in the lease is 100% accurate. When we purchased our triplex, I met with each of the existing tenants and used the estoppel certificate to ensure there were no hidden agreements between the previous landlord and the tenants. Do your due diligence to ensure you limit your risk of nonpayment (Note: Make sure you have a rental license from your state if they require one).

  1. Sacrificing Space to Build Wealth 

There are a lot of successful individuals who have paved the way for small investors to build wealth through house hacking. With house hacking comes some type of sacrifice whether it is privacy if it’s a single-family home or square footage if it is a multi-family home. For example, Dana and I moved from a 1,500 square foot, 2 Bed/2 Bath condo to a 750 square foot, 1 Bed/1 Bath apartment to start building wealth through house hacking. It may not seem like a big difference, but it has changed how we live, and we are still learning how to make the required adjustments to be comfortable in our new apartment. Short term it is challenging but long term we understand the wealth that we are building for our future.  

Overcoming:

  1. Understand your financials and use Excel or QuickBooks to build your Profit and Loss and Balance statement
  2. Select a reliable screening tool to ensure you fully vet your applicants based on your chosen criteria
  3. Building wealth through real estate is a long-term play which means you will have to delay instant gratification if it prevents progress

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