House Hacking: A New Way To Profit From Real Estate
Karan, a young professional, wants to purchase a house; he may utilise his funds to cover the down payment. It might be a little challenging to manage the home loan EMI based only on his wages, though. However, their eldest son went out for school last year & is now living independently with his wife, so Mr. and Mrs. Gupta are now the only ones living in their three-bedroom flat in Mumbai.
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The traditional idea of “paying guests” may be useful in both circumstances. For this, the millennial generation’s current term is “house hacking.” A method known as “house hacking” allows a homeowner to live in one unit while renting out the others in order to strategically make money from their property. Therefore, Arjun’s financial figures would be as follows if he purchases a two-bedroom bungalow for Rs 70 lakh and leases out one room:
- Cost of house: Rs 70 lakh
- Salary per month: Rs 70,000
- The loan is for Rs. 55 lakhs.
- 30 years is the tenure.
- EMI: Rs 42,290 with an interest rate of 8.5%.
Now that he has the second bedroom to himself, Karan can “house hack,” charging Rs 15,000 a month in rent plus an extra Rs 2,500 for utilities (power, WiFi, TV cable connection, housekeeping, etc.). Karan’s monthly EMI just needs to be paid from his pocket of Rs 24,790 thanks to this additional income. He might then use the money he had saved to make investments or pay off the loan early. Which would lower the interest rate and lengthen the loan’s term. It’s crucial to remember that the homeowner is responsible for paying the housing society’s maintenance.
But before doing anything, make sure you review the Homeowners Association (HOA) rules and zoning laws that apply to the property. Remember that strategy only works if the property is in an area with strong demand for rentals, convenient access, and room for future property value growth.
What paperwork is required?
An ordinary rental agreement (licence and leave) ought to be adequate. To prevent any disagreements, it is best to talk about and include all of the needs and wants in the agreement since the tenant and landlord would be living together.
What financial advantages exist?
- Your living expenses can be greatly decrease or eliminate with house hacking, giving you more money to save or use towards other ventures;
- Equity in a property is built up over time as its prices rise;
- A positive cash flow could be generated by you, offering an extra source of income, depending on the property & rental market.
How do you vet a tenant before allowing them to reside with you?
- Letting someone you know or someone in your trusted circle stay with you is the safest course of action to start with;
- Request information on their employment, such as where they work and their profile;
- Request that they present you to a member of their family;
- Additionally, you can look up their rental history by giving their prior landlord a call. And finding out about their payment and conduct history.
What measures should you take if you plan to house hack?
- Recognise and abide by local laws and ordinances pertaining to rental property;
- Make sure you thoroughly vet renters to make sure they are trustworthy and secure financially;
- Maintain an emergency reserve to cover unforeseen costs or empty times;
- Maintain the property often to keep it valuable and draw in reliable tenants;
- Make sure the property is adequately cover by insurance.
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