What is House Hacking?

It’s no secret that a lot of home buyers (especially younger people) need to get creative when saving up for a house.

One technique in particular that’s gaining momentum is House Hacking. This unique strategy helps home buyers offset a portion of their mortgage costs, allowing them to buy sooner or even expand their buying budget.

So, what is house hacking, and how can it help you buy a home? As real estate agents who have helped countless first-time buyers get into the market, we’re here to break it down.

What is House Hacking in Real Estate?

Let’s start by explaining what house hacking actually is. Although it’s an informal term, most homeowners and real estate insiders agree about

House hacking is when you buy a house and commit to renting out a portion of it while you live there. This allows you to generate a strong flow of passive income, which can then be used towards mortgage payments or other expenses.

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How Does House Hacking Work

One advantage of house hacking as a homeowner is that you can be flexible in how you do it. Here are a few examples of house hacking in action:

1. Renting out a spare bedroom in your 3-bedroom house to a university student.
2. Renting out a dedicated basement suite on the lower level to a long-term tenant.
3. Renting out a space in your house on a short term accommodation platform such as Airbnb or Vrbo.

Why is House Hacking a Good Idea?

We get it, the prospect of renting out a room or your basement may not be the most exciting, especially if you really want your house to be your space. That being said, the reason why so many home buyers are embracing house hacking is because the financial upside is simply so good!

Owning a home isn’t cheap. House hacking allows you to seriously cut back on your costs. In fact, with the right planning, house hacking can help you pay off your mortgage faster. Either way, it will add a nice cushion to your income.

How Much Could I Earn?

Let’s talk numbers. If you were to rent out a room in your house or set up a basement suite, how much could you make? It depends.

The Greater Toronto Area has a famously high demand for rental properties – and as a result, high rental averages. However, prices can vary based on the area, time of year, and other market conditions.

A dedicated secondary suite, like a basement apartment, could easily bring in more than $1,200 a month (probably closer to $1,500) depending on the size, number of bedrooms, location and overall appeal of the unit. For a single room in your home, you could potentially earn around $1,000 +/- a few hundred dollars.

If you’re hoping to maximize rental income down to the last dollar, you’ll want to work with a real estate agent who understands investors and the rental market. As you search for the perfect home, they can specifically source properties with house hacking potential. For example, buying a house with a built-in, ready-to-go basement apartment means you can start earning income right away.

Cons of Renting Out a Basement or Spare Room

House hacking is a great solution for home buyers who want to boost their budget. However, it’s not without its drawbacks.

One of the main disadvantages of house hacking is that you’re sharing your home and property with a tenant. Of course, you will still have your own private rooms in the house, but having another person around (especially someone you only have a landlord/tenant relationship with), isn’t for everyone.

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Is House Hacking Legal?

House hacking is perfectly legal – when it’s done legally.

On paper, renting out any part of your house to a long term tenant makes you a landlord. With this comes red tape.

In Ontario, there is a long list of rules about rental units, their size, layout, etc. On top of that, you’ll also face a handful of regulations surrounding tenant rights that could impact your experience. You’ll want to read up on all the relevant agreements and laws before bringing a tenant in.

Finally, the money you earn from house hacking is taxable income. You’ll need to claim it properly; otherwise, you could be audited or face penalties.

Find Your Dream Home With Lino Arci

Searching for the perfect place to call home? Whether you’re looking to maximize your financial power as a home buyer, settle in the perfect neighbourhood, or have other buying goals, we can help!

Ready to buy a house? We can help! Call us at 416-571-2724 or email info@arciteam.com to get started.