Housing costs in major cities across the U.S. have soared to all-time highs, making it more difficult than ever for many people to purchase a home. In response, some homeowners in Hawaii are turning to alternative methods of living and housing as a way to keep their costs down — one of these is house hacking. House hacking typically refers to “creative strategies for making money with your house rather than spending it.”
Although the term “house hacking” may sound scammy, it is entirely legitimate and is utilized by both novice and seasoned investors as a means of increasing income. If you’ve never heard of house hacking, you may be wondering how to do it and if it actually is a money-generating investment practice. The house hacking approach is, for many investors, a relatively simple way to enter the real estate market. House hacking can be a great approach, especially if you’re just starting out in real estate investing, because it can provide low-cost financing, lower or eliminate your cost of living, and position you to take on more complex real estate ventures.
The Benefits of House Hacking
House hacking offers several benefits over renting an apartment. Hacking your house means you can use it to generate income, and then pay off your mortgage every month. You can also use your home to live full-time while providing tenants housing. House hacking is the practice of purchasing a single-family or multi-family property for the purpose of living in one unit while renting out the rest. This investing approach aims to allow you to live rent-free by paying off your full mortgage with rental revenue from your renter or tenants.
Duplexes, triplexes, and fourplexes are examples of houses that can be hacked. With additional rentable space, such as a guest home or basement unit, House Hacking in Hawaii is a possibility.
You can keep the property after you move out and continue to be paid a monthly rental payment by your tenants.
How to Successfully House Hack a Property
There are several steps to house hack your property successfully, which include:
Understand financing options
Understanding your financing options is critical to ensuring that you can make the most of your house-hacking efforts. Calculating the figures to see if a property is a good candidate for house hacking is actually quite simple—at least in comparison to some other investing ideas. You can find out how much money the property will make each year after subtracting its expenses from its net operating income, or NOI. Taxes, depreciation, loan payments, and capital expenditures are not taken into account by NOI.
Total monthly cash flow equals NOI minus loan principal plus interest.
Fees for property management, upkeep, repairs, utilities, and property tax are just a few examples of possible property costs.
Find out what type of house hacking is available
Many types of house hacking are possible based on the type of property you own and what style of living and housing it provides. The goal is to find a home that can offer you more room to work with and can still generate some income. It may mean that you must live in an area where potential tenants surround you. You can often do house hacking in Hawaii on vacation homes, so you may want to look into renting them out. The investment homes that often yield the highest cash-on-cash returns include:
- Properties owned by “motivated” sellers who are trying to sell their home.
- Home foreclosures
- HUD homes
When searching for a good property to house hack in Hawaii, be sure to consider location, property tax rates, school district quality, recreational activity, employment rate in that area, and the average cost of rent/rent growth. All of these factors will be of importance to potential tenants and you will have an easier time finding tenants in Hawaii if all of these factors have been considered.
Evaluate the numbers before making an offer
Before you start house hacking, you will want to crunch the numbers on the home you plan to house hack and make sure it is worth the investment. You need to make sure your tenants would be paying enough in rent to cover your mortgage payments each month. If their rent does not cover your mortgage, or at least a good portion of it, you are not benefitting from the potential return on your investment.
Close escrow, move in, and make updates if needed.
When you purchase a home, you must close escrow and move in as soon as possible. Make sure that you take this step as quickly as possible to begin the process of making any repairs or improvements to make your home feel more like a home. Figure out where your tenants would be living, whether that’s a basement, bedroom, or ADU, and make that space feel home-y and welcoming. If the renovations are costly, don’t force them until you have secured a new mortgage and can afford them.
Find tenants to live in your rental property.
You need to have tenants living at your rental property in order to be able to generate enough income from it. This is one of the main ways home hackers can keep costs down while still paying their mortgage. With a tenant in place, you can ensure that the property is clean, presentable, and well-maintained, which can keep costs down even further.
How much startup capital do you need to house hack in Hawaii?
When it comes to house hacking, it’s not always a matter of careful saving and smart investing. Some people have realized that they can afford their mortgage while still earning additional money by renting out their extra space. Others have had to cut back on other parts of living expenses to make sure they could afford the extra payments they were making each month. House hacking in Oahu is an option for almost everyone, and the average cost of a property is $316,000. The good news is that you don’t need to spend several months saving thousands of dollars from all other items you can live without.
Housing Costs in Hawaii
As the cost of living in Hawaii continues to rise and the population continues to grow, it’s becoming increasingly difficult for people to afford homes independently. House hacking is a great alternative that allows you to live as you would in an apartment while investing in real estate. There are people already house hacking on Oahu and other islands, so it’s worth looking into when the time comes.
The Future of House Hacking in Hawaii
While home hacking continues to grow in popularity across the U.S., it is not a saturated market on Oahu and other islands in Hawaii. People interested in becoming home hackers need to be willing to take a chance and be proactive by providing new services or partnering with existing ones to help them get started. Many benefits come with house hacking, and it’s more common than people realize. Being proactive can help you gain a competitive edge in the modern workforce and provide a solid incentive for getting started.
Common House Hacking Strategies
Each home hacker needs to decide their endgame and how they want to reach it. Some people may want to buy properties in multiple locations and charge renters different amounts based on location or how long the tenant plans to live in the house. You might also have other options, including continuing with a full-time job while being your own boss at night or a vacation property for rent that can be rented out on some weeks when you don’t plan on using it. The number of different ways you can approach home hacking is vast, so make sure you are making a decision that will lead you down the best path possible.
What Do You Need to House Hack?
You will want to ensure access to your clean, fresh water supply and that the house-hacking property is connected to city water. If you are going for a rental property, it’s also important that you obtain liability insurance prior to signing any agreements. Before signing a lease agreement, ensure you know how many days the renter can stay, when they need the rent paid, and what their deposit will be.
House hacking in Hawaii is becoming more popular as the cost of living rises. House hackers can earn extra income while paying their mortgage and retaining the property’s equity. While there are many different ways to go about house hacking, it’s not a decision that should be made lightly. Make sure you take your time and do all your homework before making any decisions. You want to ensure that you are going down the right path and working toward an achievable goal on a timeline that you can stick with for the long term. House hacking is an option for almost everyone, but it takes time, effort, and patience before it becomes a reality.