House hacks you into your first home

Q: What are some creative ideas for first time home buyers to afford home ownership?

As the spring housing market kicks off, first-time home buyers are staring down high home prices, mortgage interest rates above 7% and a lack of newly listed properties for sale. Even if they are doing well financially, this is going to be a tough market for just about anyone.

I wish I had some magic advice I could sprinkle around to ensure a successful, low-stress home buying journey that doesn’t break your budget. Spoiler alert: I don’t. You may have to compromise more than you would like, and perhaps be creative.

Homebuyers struggling to make the math work might want to consider house hacking, an increasingly popular tactic in some areas.

It’s basically a new take on an old concept: buying a home with the intention of renting out rooms or features of your property to make a little extra cash. Lots of house hacks to pay off mortgages and other bills.

Househacking can involve buying a home with family or friends, or buying a home with the plan of getting tenants. You can buy a triplex and live in one unit and rent out the others, or buy a detached house with separate living space that can be rented out long or short term. I have a friend who has listed her sofa bed on Airbnb, and I’ve seen people rent out parking spaces they don’t need.

Many homeowners are hacking their way into nicer, larger homes in more attractive areas that they otherwise wouldn’t have been able to afford.

Just remember to think carefully about what these arrangements entail. Being a landlord – or even an Airbnb host – can be hard work. There is a risk that tenants and guests may become a nuisance, damage your property or cause other problems.

And these schemes may not help you qualify for a loan. Many mortgage lenders do not consider future rental income when you are in the approval process. Some local laws and homeowner associations prohibit short- or long-term leases. Even if you’re buying in a community that allows Airbnb listings, the laws can change. And you may need to buy more expensive insurance if you plan to rent out your property.

But if you find a way to make it work, house hacking can be worth it.

Option 1: Buy a home with your family or besties

The co-buying trend is growing as buyers team up with friends and family to make home ownership possible. They pool resources with the people they love (or at least as a lot) to come up with down payments and closing costs. It is also useful to split monthly mortgage payments, utility bills and maintenance and repair costs.

There is much to consider before entering into such an arrangement, financially and emotionally.

On the financial front, you should definitely work with a real estate attorney who can sort out ownership stakes and what happens if a person wants to sell or passes away.

Next, make sure the people you’re buying with have good credit scores and low debt. Otherwise, you could face higher mortgage rates and fees — if you can even qualify for a loan.

On the emotional side, you need to assess your situation realistically. Can you live with each other without going crazy? Even if you are buying a home with your parents or adult children, it may have been a few years since you last lived together. Knocking out policies involving guests, parties, pets, and cleaning schedules can save your sanity.

You should also put together a budget, including maintenance and repairs, to ensure everyone understands the financial commitment and how much they are expected to pay.

Option 2: Get a roommate

I know I know. You buy a home to get gone from your roommates – and now I suggest you move them to your new place.

But listen to me. If your lender takes into account your expected rental income, it can help you qualify for a loan or a larger one than you could have gotten on your own. And the extra money can help you pay off your monthly mortgage, plus your utility bill and the bathroom renovation you’ve been dreaming of.

This does not have to be a permanent solution. Sacrificing your privacy for a while can pay off, especially in the early years of home ownership when you’ll likely need the extra cash the most.

To protect yourself, you’ll probably want to draw up a formal lease, conduct appropriate background checks on potential tenants and set some ground rules before they move in.

Option 3: Advertise a room, or your entire home, on Airbnb

If a full-time roommate is too much of a commitment, you may want to consider short-term rentals. You can list a room in your home on Airbnb or Vrbo. Or, if you’re going out of town, you can list the entire home while you’re gone. If you’re in a vacation destination, like a big city or a beach town, your home has unique amenities, like a nice pool or horses on the property, or there’s a big event in your area, like the Super Bowl, could really kick it in.

Before the COVID-19 pandemic, a friend of mine who didn’t even have a spare bedroom in her Bronx co-op rented out her sofa bed in the living room to carefully screened travelers she found on Airbnb. She never had a bad experience and enjoyed the extra income.

Local laws governing short-term rentals are constantly changing, so be aware that you may not be able to list your property on sites like Airbnb indefinitely.

Option 4: Rent out a parking space or storage space, or even your pool

Landlords may have more to rent than just rooms. Take a look around your property to see what else you can earn.

Some rent out parking spaces, which can be a desirable rectangle of property in areas with little parking. Others set aside space in attics and basements to let out as storage. And there is now an emerging trend of homeowners renting out their pools by the hour to those looking for some summer fun.

Option 5: Buy a property with its own rental unit

If you want to maintain your privacy but can use the extra rental income, you may want to consider buying a home with a separate unit (or two) on the property.

This can be a duplex or triplex, where you live in one unit and rent out the others. Or it could be an in-law suite attached to the main residence or an additional residential unit on the property. The suites and ADUs are separate living spaces, with their own kitchens and bathrooms, which can be rented full-time or used as short-term rentals.

Whatever you choose to do, good luck out there.

If you’ve hacked your way into homeownership and want to share your story, or you have real estate questions you’d like answered, email them to [email protected] for consideration.