House hacking, the practice of renting out part of a primary residence to generate income, is becoming an increasingly popular real estate investment strategy. As property values continue to rise, this approach offers homeowners an affordable way to enter the real estate market, reduce their living costs, and build equity. Real estate professionals should be prepared to guide their clients accordingly.
The Popularity of House Hacking
In cities where housing affordability is a growing concern, house hacking presents a practical solution. By renting out part of their home, such as a basement suite, garage apartment, or duplex, homeowners can offset a portion of their mortgage, property taxes, and maintenance expenses. The rental income generated from tenants allows homeowners to manage the financial burden of homeownership more easily while gaining valuable experience in property management. It can be a stepping stone for many homeowners to further real estate investments.
With the potential to reduce monthly housing costs and build equity faster, house hacking is becoming a go-to option for Canadians looking to enter the real estate market.
Financing
For clients interested in house hacking, financing is a key consideration. Since house hacking typically requires purchasing larger properties with rental potential, it can involve higher upfront costs, although the rent income should offset and counteract these higher costs. Because the home will still serve as the owner’s primary residence, homeowners can often access more favourable mortgage rates. However, good financing is critical for keeping the property affordable and contributing to the success of the rental endeavour.
Some buyers may not be aware that they can qualify for primary residence financing while renting out part of the property, which could influence their decision to consider homes with rental potential. Highlighting this can be a strong selling point for properties with legal secondary suites or rentable spaces. Real estate professionals can streamline the process and ensure clients have all the information they need, by connecting them with a reliable mortgage broker.
What Properties Are Suitable for House Hacking?
Choosing the right property is critical for clients interested in house hacking. Properties that naturally lend themselves to rental income while maintaining privacy and comfort for the homeowner work best.
Some of the most ideal house-hacking properties include:
- Homes with Legal Basement Suites: These properties allow homeowners to rent out a separate living space without significantly altering their lifestyle.
- Multi-Family Homes: Duplexes, triplexes, and fourplexes are excellent options. These properties offer self-contained units for tenants, and properties with up to four units still qualify as owner-occupied for mortgage rules.
- Carriage Houses, Guest Houses, or In-Law Suites: These alternative arrangements offer privacy and appeal to tenants seeking separate living spaces.
Properties that already have secondary suites, such as basement apartments or converted garages, are particularly appealing to inexperienced buyers, as they minimize the need for costly renovations.
Not all properties are eligible for secondary suites or rental units. Ensure the property meets municipal and provincial guidelines for rental units, including separate entrances, fire safety, and other legal requirements.
Partnering with a Mortgage Broker
A mortgage broker with experience in house hacking can assist clients in navigating the complexities of financing, particularly when it comes to structuring loans to improve affordability and what an individual can borrow if considering a larger property to leverage this strategy. Referring clients to experienced brokers can help them receive the guidance they need.
House hacking allows homeowners to reduce their living expenses, build equity, and gain practical experience in property management. By helping clients identify suitable properties and connecting them with knowledgeable mortgage brokers, you can support them in fully capitalizing on this growing trend and securing financing that enhances their investment potential.
Don Scott is the founder of a challenger mortgage brokerage, Frank Mortgage, which is focused on improving access to mortgages. They can eliminate traditional biases and market restrictions through the use of technology to deliver a mortgage experience focused on the customer. Frankly, getting a mortgage doesn’t have to be stressful.
