6 House Hacks for Free Mortgage

How to Cover your Mortgage: 6 House Hacking Strategies

Free mortgage payments? Yes please! But how does it work?

Try these house hacks so can earn money to cover your mortgage.

1. Multifamily House Hacking: Long-Term Rental

Multifamily properties are probably the most common form of house hacking out there. This is because they are incredibly effective. First, what is a multi-unit or multifamily house? Any residence with 2-4 units is considered a residential multi-unit. Any buildings with 5+ is considered commercial multi-units – for example: an apartment building.

The “hack” here is specifically with the residential units because you can take out a regular residential loan to buy the property. FHA may require 3.5% down or conventional may require 5% down payment. When our clients hire us to help them accomplish this goal, with the help of a seasoned mortgage lender, we help you paint the picture of the financial costs.

The concept is simple. Buy the house with 2-4 units (separate rentals) and live in one of the units – renting out the rest of the space. The goal here would be to live without having to pay for your own portion of space because the profits from the other unit(s) should cover some OR ALL of the entire mortgage!!

Some of you might say, “Well I don’t want to live there, I can just rent my unit out.” Yes, that would be a perfect concept yet to qualify for the low down payment financing, one of the stipulations is that you MUST live there as a primary residence – sometimes for at least 18-24 months.

2. Multifamily House Hacking: Short-Term Rental

If you are lucky enough to live in an area with a strong tourism presence – or have your eyes on a property with a potentially high tourism presence – then you may find more joy in renting out your house on Airbnb or VRBO.

The immediate difference from a long-term rental may be more beneficial. You don’t have to be concerned for personality conflicts, rent defaults, evictions, pets, poor maintenance, lawn care, or any other potential headache that can sometimes become part of the long-term equation.

Short-term rentals come with their own set of “risks” of course. Guests can still cause damage, vacancy rates can vary based on the season, extra planning around cleaning, laundry, and customer service the list goes on here too. Don’t forget you’ll need to furnish and decorate the place – nothing fancy needed here as long as it meets the needs of the guests and looks taken care of.

In order to acquire a property and make it a short-term rental, it must be purchased with an “investment” loan which is different from the normal FHA, conventional etc. These typically require a 15-25% down payment – unless of course you plan to convert your current property.

The house can turn into a rental when you’re not home, you can rent out a space of the house like the basement or a spare bedroom, the property can have a tiny house added to rent out, a portion of the driveway can be rented for RVs – essentially converting a portion or all of the property to earn income.

3. Live-in Flip House

Multifamily homes are not for everyone. Now, for those who love home improvement projects may enjoy this next strategy!

Another way to earn extra money would be to buy a fixer-upper, renovate it over the course of a year or two, then sell it for a profit. Instead of a short-time and faster flip, this would take place over the course of your time living there. The goal with this strategy is to earn profit to cover your mortgage that you paid while living there. The key being to focus on the high-dollar return remodeling to maximize your experience.

Then you can rinse and repeat, doing it over again with another fixer-upper. Keep in mind, you will want to plan with how the market is fluctuating. We can of course help you understanding how/when the housing market may benefit you.

In order to acquire a property for this, you can buy with as low as 0% for first-time home buyers (about 3.5% for FHA and 5% conventional) yet remember, you must reside in the property for at least 18-24 months per the terms of the financing you choose. Don’t forget about educating yourself on how interest rates can affect your goals.

Another finance option would be to buy the house with a 203k loan or a Fannie Mae Homestyle renovation loan. The way this works is simple – get a quote on the renovation costs and this is added to your purchase price; making one single loan.

BONUS: if you live in a property for at least a year, you pay the lower capital gains tax rate on your profits. If you stay for at least two years, you can AVOID real estate capital gains tax by taking advantage of the primary residence exclusion. Specifically covering profits up to $250k for single owners and $500k for married owners.

4. Housemates or Roommates

Imagine living in a house and your roommate pays for more than half the mortgage. This essentially applies the long-term rental element to the portion of the home you make available.

It’s a good idea to run your tenants through a screening process especially since you’ll be sharing the same house. Yet this may be more than the typical background check and credit score check. You can ask questions like:

  • When do you normally go to sleep and wake up?
  • Do you plan to have guests often? What times?
  • Which chores do you dislike? Which chores do you enjoy?
  • How often do you like to cook?
  • How often do you think the house should be cleaned?
  • Do you have a significant other?
  • Will you have guests over night?
  • Do you like social events? How often?
  • Are you allergic to anything?

And the list can go on – which is necessary as creating a win-win experience will be worth the extra work ahead of time.

Another benefit to this process is that you can split the utility bills – saving thousands. You do have to sacrifice some privacy yet in return you can cash flow on some mortgage savings while still earning 100% of the equity. If you’d like to take advantage of this, check out PadSplit.

5. Add Rental Unit Space

Another way to introduce the previous strategy and create a cash flowing scenario with MORE PRIVACY would be to add a rental space by adding onto the house or converting an existing basement or garage.

If it cost you $6,000 to convert a basement, and you rent it for $600 per month. You’ll earn your money back in just 10 months!!! Afterward you can enjoy 100% profit and put it toward your mortgage.

This also applies to adding a shed unit that serves the purpose of a tiny home. Check with your local real estate expert to get the scoop on how much each square foot is renting for in your area. I think you’d be surprised that these tiny homes can go for around $1,000-2,000 rent per month depending on the finished product.

With these additional spaces, consider the amenities that you can provide to increase your profits. Items like designated parking, utilities included, fast internet, private dwelling, and anything you can do to improve their experience.

6. Move into the New Rental Unit Space, Rent out the House

Now this sounds wild – yet people have lots of success with it! Essentially you would build your tiny house, cabin in the woods, a tucked away in-law suite, or your DREAM house – then move into it.

This leaves you with three options- renting the main house out in a long-term or short-term setting -OR- you can sell the previous property after subdividing the lot to recover your building expenses. Depending on your area, one of these options may be a grand slam opportunity for you.

If you’re not sure what your investment opportunity looks like with 100% confidence – with our guides to buying and selling in this market, we are glad to help you with your business plan After all, helping others build wealth is why we got into real estate.
To The Frey Team, real estate is…


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